Questions and Answers
Is forex currency exchange trading permissible in Islam or it is haram?
Respected Brother in Islam
As Salaamu Alaykum wa Rahmatullahi Wa Barakaatuh
Haamidaw wa Musalliyaa
Your query below refers;
Currency trading in itself is not against the principles of Islamic Economics. However, the Sharia has laid down certain guidelines and regulations when trading in currencies. It is necessary to uphold and maintain these regulations when trading in currencies. The most important of these regulations is that currencies of different countries can be traded in exchange of each other provided that the transaction is completed on spot (i.e. both counter-values should be exchanged at the same time), irrespective of whether the contract is concluded at above or below the spot rate. In other words both the counter-values are exchanged at one and the same time.
The exchange of both counter values and the subsequent possession acquired by the buyer and seller thereof, could take place through actual possession or constructive possession which is also acceptable. In order to enlighten you further on this, I quote hereunder from the Sharia Standards, prepared by AAOIFI:
" 2/6/4. Physical possession takes place by means of simultaneous delivery by hand.
2/6/5 Constructive possession of an asset is deemed to have taken place by the seller enabling the other party to take its delivery and dispose of it, even if there is no physical taking of possession. Among other forms of constructive possession that are approved by both Shari'a and business are the following:
(a) To credit a sum of money to the account of the customer in the following situations:
(1) When the institution deposits to the credit of the customer's account a sum of money directly or through bank transfer.
(2) When the customer enters into a spot contract of currency exchange between himself and the institution, in the case of the purchase of a currency against another currency already deposited in the account of the customer.
(3) When the institution debits - by the order of the customer - a sum of money to the latter's account and credits it to another account in a different currency, either in the same institution or another institution, for the benefit of the customer or any other payee. In following such a procedure, the institution shall adhere to the principles of Islamic law regarding currency exchange. A delay in making the transfer is allowed to the institution, consistent with the practice whereby a payee may obtain actual receipt according to prevailing business practice in currency markets. However, the payee is not entitled to dispose of the currency during the transfer period, unless and until the effect of the bank transfer has taken effect so that the payee is able to make an actual delivery of the currency to a third party.
(b) Receipt of a cheque constitutes constructive possession, provided the balance payable is available in the account of the issuer in the currency of the cheque and the institution has blocked such a balance for payment......" Similarly, conventional forward exchange contracts and purchasing or selling of currencies on the futures market is also prohibited. These regulations are deduced directly from the Ahaadith of Rasulullah (Sallallaahu Alayhi Wa Sallam).
With regards to other commodity transactions and normal sale transactions, these too are governed by the Islamic Laws of contracts and we recommend that you study the same from a reliable source before engaging in such transactions.
You may refer to the book, "An Introduction to Islamic Finance" by Mufti Taqi Uthmani, which will Inshallah guide you.
One has to be careful in as far as Shariah compliance is concerned when trading on most of the web platforms and markets as the conditions of a valid trade are not generally adhered to. Many people do not really intend to buy and take possession of these currencies and commodities on such platforms. Transactions are very often speculative and hedge based which do not always fulfill Shariah requirements.
And Allah Ta'ala Knows Best
Was Salaam Shafiq Jakhura (Mufti) for Fatwa Committee