Is Swap-Free Online Forex Trading Permissible?

Answered by Shaykh Muhammad Carr

Question

Is swap-free (interest/riba-free) online forex trading permissible (halal)?

Answer

Thank you for your question.

May Allah reward you for ensuring that your income is permissible. Even without interest, forex trading remains impermissible.

The Problem with Forex Trading

The issue with the validity of retail forex trading is that, when trading a currency pair, no ownership of the underlying currencies is established, nor does the broker facilitate any actual exchange of currencies. Opening and closing buy or sell trades on forex platforms is merely speculative, based on the relative prices of currency pairs.

Hakim Ibn Hizam said: O Messenger of Allah, a man comes to me asking to buy something which I do not have, should I buy it for him from the market? He said, “No, do not sell what you do not have.” [Abu Dawud]

How Forex Trading Works

When you trade in the forex market, every transaction involves two currencies: you buy one currency and you sell another.

For example, if you trade EUR/USD and buy one lot (100,000 units), you are buying euros and selling dollars.

Unless you already have those massive amounts in your account, your broker is effectively lending you the money to make the trade. You are borrowing the currency you do not own to purchase the other currency.

If you buy EUR/USD, you are buying euros and paying in U.S. dollars, and when you sell EUR/USD, you are selling euros and receiving U.S. dollars. Suppose EUR/USD =1.10. If you buy 1,000 EUR/USD, you are buying €1,000 and paying $1,100. If the price later rises to 1.15 and you close the trade, you make $50.

If you are selling, you would then lose $50.

What is abundantly clear is that you are merely speculating on whether a currency will rise or fall; it is essentially a gamble.

I pray this is of benefit and that Allah guides us all.
[Shaykh] Muhammad Carr
Checked and Approved by Shaykh Faraz Rabbani

Shaykh Muhammad Carr has dedicated his life to studying and transmitting our beautiful deen. His studies have taken him around the globe, where he has benefited from many luminaries. Under the guidance of his teachers – Shaykh Taha Karan, Shaykh Yaseen Abbas, Shaykh Muadh Ali, and many others – Shaykh Muhammad has grown to appreciate the beauty and benefits of diverse scholarship. He completed his memorization of the Qur’an at Dar al-Ulum Zakariyyah in September 1997 and received an Alimiyya Degree in 2006 from DUAI (Darul Ulum al-Arabiyyah al-Islamiyyah). He is also affiliated with Masjid Auwal in Bo Kaap, Cape Town (the oldest mosque in South Africa), where he serves as a co-imam, and Dar Al-Safa, where he has taught since 2018. As a teacher, he imparts the wisdom of our heritage and tradition by opening the door to students. As an imam, he has the unique opportunity to serve his community in daily life.

In addition to his roles as a teacher and imam, Shaykh Muhammad Carr has contributed significantly to the administrative and advisory aspects of Islamic institutions. Since 2023, he has served as the Administrative Director at The Imam Kurani Institute, contributing to the institution’s growth and development. He continues to pursue traditional Islamic Sciences, possessing a keen interest in Islamic Contract Law and Finance. Shaykh Muhammad has been a Shari‘a Board Member for Islamic Asset Management & Insurance Companies since 2001, aligning financial practices with Islamic principles.