Is Forex Trading Halal or Haram?

Summary

In 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

00:00

📈 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.

05:01

🚫 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.

Keywords

💡Forex

Forex, short for foreign exchange, refers to the global market where currencies are traded. In the context of the video, Forex is discussed in relation to its permissibility under Islamic law and the different ways it is conducted, such as spot trading and through derivatives. The video emphasizes that traditional Forex trading, especially through contracts for difference (CFDs), is often not aligned with Islamic principles due to the speculative nature of the transactions.

💡Halal

Halal is an Arabic term that means 'permissible' in Islamic law. The video discusses whether Forex trading is considered Halal, which is a significant concern for Muslim traders. The speaker argues that many forms of Forex trading, particularly those involving speculation and leverage, do not meet the criteria for Halal transactions as they do not involve real ownership or exchange of assets.

💡Islamically Compliant

Islamically compliant refers to financial activities that adhere to the principles of Islamic law, which prohibit interest (riba), gambling (maysir), and uncertainty (gharar). The video explores whether Forex trading can be conducted in a way that is compliant with these principles, concluding that most modern Forex practices, especially those involving derivatives and CFDs, are not compliant.

💡Spot Market

The spot market is a part of the Forex where currencies are bought and sold for immediate delivery, typically within two business days. The video mentions that in Islamic law, the spot market is the only acceptable form of currency exchange, where the currencies must be exchanged on the spot and in a one-to-one ratio if they are of the same type.

💡Derivatives

Derivatives are financial instruments whose value is derived from underlying assets, such as currencies, commodities, or stocks. In the video, derivatives are discussed as a form of Forex trading that is not Sharia compliant because they involve contracts that do not represent real ownership of the underlying asset, and thus are more akin to betting on price movements.

💡Contracts for Difference (CFDs)

Contracts for Difference (CFDs) are financial instruments used in trading where profits or losses are tied to the price movement of an underlying asset without actual ownership of the asset. The video explains that trading Forex through CFDs is similar to gambling, as it involves speculating on price movements without taking real possession of the currencies being traded.

💡Leverage

Leverage in trading refers to the use of borrowed funds to increase the potential return on investment. The video discusses how leverage is used in Forex trading to放大交易规模, which can lead to significant gains or losses. The speaker argues that the use of leverage in Forex trading is a form of speculation that does not align with Islamic principles.

💡Islamic Version

The term 'Islamic version' in the video refers to certain Forex trading platforms that claim to offer a version of their services that is compliant with Islamic law. The speaker critiques this notion, stating that even if these platforms do not charge interest or certain fees, the underlying transactions are still speculative and do not involve real ownership or exchange of assets.

💡Volatility

Volatility in the context of trading refers to the degree of variation in the price of a security or currency. The video explains that high volatility can be detrimental to traders, as it can lead to significant losses, especially when using leverage. The speaker also suggests that some platforms may artificially increase volatility to disadvantage traders.

💡Technical Analysis

Technical analysis is a method used in trading to predict price movements by analyzing historical market data. The video mentions that many Forex trading courses and platforms promote technical analysis as a way to predict market movements and make profitable trades. However, the speaker argues that this approach is speculative and does not guarantee success, as real-world financial markets do not move in predictable patterns that can be easily captured by 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

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