Is Forex Trading Halal or Haram?
Summary
TLDRIn this video, the host explores the permissibility of Forex trading from an Islamic perspective. They clarify that while spot currency exchange is permissible, engaging in Forex through derivatives or contracts for difference (CFDs) is akin to gambling and not Sharia compliant. Such trading involves no real ownership or exchange of assets, merely speculating on price movements. The host warns against the allure of get-rich-quick schemes and advises viewers to pursue productive, beneficial activities instead.
Takeaways
- 📚 Forex trading involves the exchange of currencies and is a common topic of interest in finance.
- 🔄 Islamic rules for currency exchange are straightforward: same currencies must be exchanged at a 1:1 ratio on the spot, and different currencies can be exchanged at the current market rate also on the spot.
- 🏦 The spot market is where large institutions and central banks exchange significant amounts of money for transactions like paying invoices.
- 🚫 Forex derivatives, such as futures and options, are generally considered not Sharia compliant as they involve trading contracts rather than actual currency ownership.
- 💡 Retail Forex trading, often promoted on social media, typically involves contracts for difference (CFDs), which are similar to derivatives and involve speculation rather than actual currency exchange.
- 🔢 The use of leverage in Forex trading can amplify gains or losses, creating a high-risk environment where small market movements can lead to significant financial outcomes.
- 🚫 The concept of 'Islamic Forex accounts' offered by some platforms is misleading as the underlying transactions are still speculative and do not involve real currency exchange or ownership.
- ❌ Forex trading as it is commonly practiced today is akin to gambling, with the majority of traders losing money, and the platforms themselves benefiting from the volatility and structure of the market.
- ⚖️ Brokers and platforms profit from the trading activities, as they effectively bet against the traders, and are designed to favor the house over the individual trader.
- ⏰ The speaker advises against pursuing Forex trading as a means of income and instead encourages learning real skills and engaging in productive activities that benefit others.
Q & A
What is the main topic discussed in the video?
-The main topic discussed in the video is whether Forex trading is permissible from an Islamic perspective.
What are the Islamic rules for currency exchange?
-In Islam, currencies of the same type can only be exchanged one to one, and they must be exchanged on the spot. For different currencies, they can be exchanged as desired, but also on the spot.
What is the difference between spot market and derivatives in Forex?
-The spot market involves immediate exchange of currencies, often between large institutions and central banks. Derivatives, on the other hand, involve trading contracts based on the future value of currencies, which is not considered Sharia compliant.
Why are Forex Futures and options not considered Sharia compliant?
-Forex Futures and options are not considered Sharia compliant because they involve trading contracts rather than actual currency, and there is no real ownership of the asset being traded.
What is retail Forex and how does it relate to contracts for difference (CFDs)?
-Retail Forex is the trading of currencies by individual investors, often through online platforms. It is closely related to CFDs because it involves entering into contracts for the difference in currency values without actual ownership or possession of the currencies.
What is the issue with the use of leverage in Forex trading?
-The issue with leverage in Forex trading is that it amplifies gains and losses, leading to a high risk of complete loss for the trader. It creates a form of speculation that is not tied to actual currency exchange.
Why are 'Islamic Forex accounts' not considered a solution to the problem?
-'Islamic Forex accounts' are not a solution because they simply avoid charging interest or certain fees, but the underlying transaction is still a speculative contract for difference, not a real currency exchange.
How does the platform make money in Forex trading?
-Platforms make money by betting against traders, often increasing volatility and using small margins to shake off traders from their positions, ensuring that the majority of traders lose.
What is the advice given to those interested in Forex trading?
-The advice is to learn real skills and engage in productive activities that benefit people, rather than pursuing the speculative and gambling nature of Forex trading.
What is the success rate of traders in Forex according to the video?
-The video suggests that around 85 to 90% of all traders eventually lose in Forex trading, indicating a high rate of failure.
Outlines
📈 Understanding Forex in an Islamic Context
The speaker begins by addressing the topic of Forex and its permissibility in Islam. They explain that the basic Islamic rule for currency exchange is straightforward: same currencies must be exchanged at a one-to-one ratio and on the spot, while different currencies can be exchanged as desired, also on the spot. The script then delves into the different ways currencies are exchanged, such as through the spot market, which involves large institutions and central banks, and derivatives like Forex futures and options, which are considered not Sharia compliant as they involve betting on price fluctuations without actual asset ownership. The focus then shifts to retail Forex, which is often promoted through social media and involves trading through contracts for difference (CFDs). This method is likened to gambling, as it does not involve actual ownership or exchange of money but rather speculation on price movements, which is not permissible in Islam.
🚫 The Illusion of Forex Trading and Its Risks
In the second paragraph, the speaker clarifies that the term 'trading' is a misnomer when it comes to Forex, as it is more about speculation and betting on price movements rather than actual buying and selling. They discuss the so-called 'Islamic' versions of Forex platforms, which claim to avoid interest charges but are still based on the same speculative contracts for difference. The speaker emphasizes that these transactions lack real-world substance, as they are merely recorded on the platform's books. They also point out that such platforms are designed to favor the house, often increasing volatility to disadvantage traders and resulting in a high percentage of traders losing money. The advice given is to pursue productive skills and activities that benefit others, rather than engaging in the speculative and often deceptive world of Forex trading.
Mindmap
Keywords
💡Forex
💡Halal
💡Islamically Compliant
💡Spot Market
💡Derivatives
💡Contracts for Difference (CFDs)
💡Leverage
💡Islamic Version
💡Volatility
💡Technical Analysis
Highlights
Forex trading is often questioned for its permissibility in Islamic finance.
Islamic rules for currency exchange are straightforward: same currencies must be exchanged one-to-one on the spot.
Different currencies can be exchanged in any ratio, but the exchange must occur on the spot.
Spot markets involve large institutions and central banks exchanging currencies for payments.
Derivatives like Forex Futures and options are considered not Sharia compliant as they involve contracts, not actual currency ownership.
Retail Forex trading often involves contracts for difference (CFDs), which are similar to derivatives and involve speculation rather than actual currency trading.
The concept of leverage in Forex trading is likened to a form of gambling, as it amplifies the impact of small market movements on the trader's capital.
The term 'interest' in Islamic Forex is misleading, as no real money is exchanged, and thus no interest is charged.
So-called 'Islamic Forex' versions claim to avoid interest charges, but the fundamental issue is the speculative nature of CFD trading, not the fees.
Forex trading as it is today is not about exchanging money but rather betting on price movements without ownership.
The nature of Forex trading platforms is such that they often profit from increased volatility and small trader margins.
Studies suggest that 85 to 90% of Forex traders eventually lose money, indicating the platforms' advantage.
The get-rich-quick schemes in Forex trading are criticized as they promote a lifestyle of constant screen watching and fear of loss.
The advice given is to learn real skills and engage in productive activities rather than speculative trading.
The presenter invites viewers to learn more about finance and economy from an Islamic perspective on a new platform called Muslim Money Matters.
Transcripts
asalam alaykum and welcome back to the
channel today we have massive topic it's
about Forex one of the most frequently
Asked question is about foreign exchange
of currencies so today we are going to
ask is what is happening in Forex really
Halal permissible islamically compliant
how do we understand it so let's get
into
it so when we are talking about foreign
exchange when we are talking about
exchanging currencies or money you go to
visit foreign country you want to buy
something nice you need that currency so
you go to the market and you give let's
say $100 and they give you whatever is
equivalent in L or euros and so on so
Islamic rule when it comes to exchanging
of currencies is very very simple if the
currencies are the same like a dollar
for dollar you can only exchange them
one to one and they must be exchanged on
the spot and another rule when it comes
to exchanging different currency is that
you can exchange them as you wish but as
long as they are exchange on the spot so
with that in mind what are the some of
the ways that we see the currencies are
being exchanged there is a spot Market
these are often the markets where you
would see big institutions central banks
are exchanging large quantities of money
that they might need for paying the
invoices and so on this is something
that most of the listeners here are not
going to be engaged with another way to
engage in Forex is through derivatives
you have these Forex Futures and options
where you are not really buying really
currency but a contracts and this is
something that most of the scholars will
say is not Sharia compliant because
you're not trading something that is
real anyway there is no real ownership
of the asset and this is just betting on
the fluctu ation in price now finally we
come to the retail Forex this is
something that you will see all of these
courses on your ti Tok and Instagram
people are offering you signals or some
ideas teaching you how to see what's
going to happen before it happens all of
those getrich quick schemes that talk
about trading Forex this is the one that
we are talking about this is trading
Forex through what we call contracts for
difference cfds now this way of trading
Forex is actually the very similar to
what we see with the derivatives which
is that you are not really taking
ownership or possession of money at all
what you are doing is you are entering
into the contract for difference with
your platform with the broker and this
is where the problem start often time
people think that you are getting some
kind of a loan it acts as a leverage as
as if you are buying something real
there is no loan no one is giving anyone
loan it's just called like a loan or
margin or leverage so when you are
putting $1,000 for example for a
position which is 100 to1 you are buying
into the
$100,000 position you are not taking
ownership of $100,000 there is no one
who is giving you a loan so all of this
is just terminology what you are doing
is a contract for difference so you and
the platform are entering the contract
it's basically saying something along
these lines I'm putting
$1,000 for $100,000 position if the
price is this then I will get $2,000
3,000 whatever is the price at the end
if the price is something else then the
platform will get my money so what is
this when the price of the currency
moves tiny bit this Leverage What we
call this amplification can completely
wipe your $1,000 or make your $1,000
multiplied now the currency is moving 1%
but it is totally wiping or multiplying
your $1,000 so we see that this is
purest form of gambling where you are
pretending that you have actually
purchased the money and you are actually
benefiting from the price movement so
all of those rules of exchanging of
money they don't even apply to Forex of
today because Forex of today has nothing
to do with buying and exchanging money
or currencies it's like you are watching
a birds in the sky and you are ride a
contract with your friend and you say if
the birds go up I'll give you $1,000 and
the friend say if the bird flies down
I'll give you $1,000 it's just pretend
so in reality you are not really
purchasing anything you are not trading
the trading is totally incorrect word
here you are simply speculating or
betting on the price movement I have
also seen on some of these platform they
say we have Islamic version now when I
read what is the Islamic opinion they
say we don't charge interest and this
term interest here is also misleading if
you don't have any real money being
exchanged there is no even loan to speak
of interest there is no even buying or
selling into that nothing is really
recorded in the real world it's
everything is just recorded on a books
of De platform you are betting against
the broker so when these Islamic option
tell us there is a Islamic version they
are saying that there are no fees for
certain transaction and there is this
interest rate differential which is just
a name for a fees that sometimes is
applied but the reality is where whether
there is that fee or no there is no fee
the underlying transaction is not money
exchange there is no real ownership both
of these are just trading contract for
difference so in summary because there
is no real buying and selling of these
currencies there is only a contract
where we are betting and speculating on
a price movement of something that we
don't have even ownership of this is the
pure game of chance and so it is not
possible to make this permissible
business now there is one more thing to
be mindful of because for these platform
and Brokers to make money remember they
are betting against you you are betting
against them you are not even betting in
the Forex against the other fellow
Traders you are all betting against the
platform and so in gambling House Always
Wins they wouldn't be in a business if
most of the Traders would win so what
you will find often is that the way the
system is designed you have a small
margin volatility is your enemy it will
wipe you quickly it won't wipe platform
so what you will find is because how
this game is done volatility sometimes
artificially even increased by some of
these platform and there are many of
these platform we often find them they
increase volatility just to shake off
these Traders from their position and
small margins so that they can win and
some studies show that somewhere around
85 to 90% of all Traders eventually lose
so this promise that we see in these
getrich quick courses where you can
learn how to do these technical analysis
you will supposedly have these signals
and access to information and you will
look at some pie charts and therefore
you will do something nothing in real
life moves in these Pips and seconds and
milliseconds there is no real life force
that do these kinds of things so this is
all purely speculative people who do
this you can see them after a while
completely gambling lifestyle they're
constantly glued to their screen
watching little movements from second to
a second and they are just fearful that
something will completely Vive them off
so only people who make money are the
platforms and people who are selling you
this fake idea that this is the way to
earn money so my advice for people is
that learn some real skill do something
that is useful with your time do
something that is productive that
benefits people and inshallah we'll see
you in the next video Salam
alikum thank you for spending time to
watch this video if you would like to
learn more about finance and economy
from Islamic perspective head to our new
platform Muslim Money Matters where we
go in much greater details regarding the
content until next time my name is Al
chanam alaykum
oh
[Music]
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