Fatwa: # 44876
Category:
Country:
Date: 6th May 2020

Title

Is retail forex trading permissible with interest-free leverage?

Question

Assalamu Alaykum

 

1)Is it Halal trade in Forex deals where the broker does not charge interest not do they charge a commission when they give money for leverage (a loan)?

2)Also, if they deals happen overnight rather than at once is it permissible?

3)Also could you please clarify why when some scholars are asked about Forex they give a blanket ruling of "No".

Answer

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

1. No, it is not permissible to engage in retail forex trading even if the broker does not charge “interest” or “commission” on the leverage.

The leverage provided by the broker is not technically a loan since the broker does not actually lend any money. Rather the leverage serves to magnify potential returns (and losses).

Retail forex is actually a gamble and a bet on one currency in the pair outperforming the other. The leverage just serves to make that bet bigger. There is no ownership of any asset, just a bet on the movement of currency (i.e. exchange rate):

“Now, as a Forex trader, you are going to be betting on one currency in the pair outperforming the other...This may seem simple enough—after all, this is just currency exchange and you are betting that one will outperform the other—however, what you profit or lose depends on the currency price movement.” [i]

However, the technical definition of retail forex is that it consists of contracts that are traded as liabilities of underlying currencies:

As you've learned, contracts traded in the FOREX and futures markets are not assets; they are liabilities. Simply put, traders in the futures and FX markets are buying and selling obligations to make or take delivery of the underlying currency at a particular price and time in the future.” [ii]

“In a different example, let's say that you believe the price of euro dollar will fall over the foreseeable future, so you sell EURUSD (sell euros and buy U.S. dollars). But wait a minute. You don't own euros in real life, so you ask yourself how it is that you can sell them if you don't already own them. Well, when trading forex, it is possible to make money if the price of a currency pair goes up or down, whether you own it in real life or not. When you trade forex, you are trading contracts, not crisp bills of domestic or foreign currency.”[iii]

Even if this explanation is taken into account, that retail forex trading consists of trading in liabilities for underlying currencies for delivery on a future date, then too it is impermissible. [iv][v] In addition, the trader is buying and selling what he does not own nor possess, which is also impermissible here.

It was clarified earlier that the leverage makes the trader's bet bigger and is not actually a loan. This would make the issue of leverage being “interest-free” a mute point. However, even if the leverage is assumed to be an “interest-free” loan, the broker only provides this leverage on condition that the trading is done through their affiliated institution. This is not permissible because even if the broker is not charging interest outright, he still benefits by charging you a commission per trade or spread. [vi][vii]

If the broker has no gain at all involved – no commission, no interest – then why would he provide leverage to a trader for which the broker accrues no benefit at all? Further, even if this claim is valid, the main issue that trading in retail forex is impermissible remains.

2. Before addressing spot forex positions that are held overnight, it should be noted that in spot transactions, the settlement date on most currency pairs is T+2 (two business days from the trade date) while some currency pairs settle in T+1 (one business day from the trade date).

As stated earlier no currencies are really being traded, rather liabilities, according to the technical definition provided earlier. For argument's sake, even defining retail forex to be a trade of actual currencies would not make it permissible. This is because there is no immediate possession by either party of even one of the currencies (a requirement in Islamic Law) at the time of the transaction. [viii]

In overnight transactions, the issue is further exacerbated because you will pay or receive a rollover fee which is the interest rate differential between the currencies in any pair held overnight.

As a result you are either paying or receiving interest in overnight transactions as is apparent from the following references:

“Despite interest-free leverage provided by brokerage firms, FX traders are subject to the interest rate differential between the currencies in any pair held overnight (beyond the NY close).” [ix]

If you hold a spot forex position overnight — that is, the position is rolled over — then you may pay or receive what is called the rollover fee...If you buy a currency pair where the base currency has a higher interbank interest rate than the quote currency, then you will receive interest, or a rollover fee; For example, if you buy the AUD/USD, and the interbank interest rates are higher in Australia than in the US, then you may receive a rollover fee (interest may be credited to your account). On the other hand, if the interest rates are higher in the US, then you may have to pay a rollover fee (interest charges will be debited from your account).” [x]

3. In conclusion, as seen from the above, whether one defines retail forex as gambling, trading in liabilities of the underlying currencies or the actual currencies itself, whether at spot or overnight, and whether the leverage is stated by the broker to be free of interest/commission or otherwise, in all these cases retail forex trading remains impermissible.

And Allah Ta’āla Knows Best,

Sohail ibn Arif,
Assistant, Darul Iftaa
Chicago, USA

Checked and Approved by,
Mufti Ebrahim Desai.

[i] Lowe, Mark. Swing Trading: Simplified - The Fundamentals, Psychology, Trading Tools, Risk Control, Money Management, And Proven Strategies. SD Publishing, 2020.

[ii] Garner, Carley. Currency Trading in the FOREX and Futures Markets. Upper Saddle River, NJ: FT Press, 2012, 102.

[iii] Paz, Javier H. The Forex Trading Manual: the Rules-Based Approach to Making Money Trading Currencies. New York: McGraw-Hill, 2013, 27.

[iv] ولا ينعقد بيع الدين من غير من عليه الدين؛ لأن الدين إما أن يكون عبارة عن مال حكمي في الذمة، وإما أن
يكون  عبارة عن فعل تمليك المال وتسليمه، وكل ذلك غير مقدور التسليم في حق البائع، ولو شرط التسليم على المديون لا يصح أيضا؛ لأنه شرط التسليم على غير البائع فيكون شرطا فاسدا فيفسد البيع.
(بدائع الصنائع، كتاب البيوع، فصل في الشرط الذي يرجع إلى المعقود عليه: ٥/ ١٤٨؛ العلمية)

[v] ومن بيوع الغرر أن يبيع دائن دينه من غير مديونه. فإن كان إلى المديون نفسه، فهو جائز بثمن حال في غير السلم والربويات.
(فقه البيوع، المبحث الثالث في أحكام البيع والثمن: ١/ ٣٤١؛ مكتبة معارف القرآن)

[vi] ٤.  وقد تعطي بورصة العملات فرصة للإنسان أن يودع فيها مبلغا أقل، ويتجر بمبلغ أكثر،...ويسمى"البيع بالهامش"  وهذا في الحقيقة قرض يتقاضى عليه فوائد ربوية.
(فقه البيوع، المبحث السادس تقسيم البيع من حيث ربحيتيه: ٢/ ٧٦٤ - ٧٦٥؛ مكتبة معارف القرآن)

[vii] ٢ / ١٢ صور من المتاجرة بالعملات عن طريق المؤسسات

٢ / ١٢ / ١ من الصور الممنوعة شرعاً متاجرة العميل بالعملات بمبالغ أكثر مما يملكه، وذلك من خلال منح المؤسسة التي تدير المتاجرة تسهيلات مالية للعميل ليتاجر بأكثر من المبلغ المقدم منه.

٢ / ١٢ / ٢ لا يجوز للمؤسسة إقراض العميل مبالغ تشترط عليه فيها التعامل بالمتاجرة بالعملات معها دون غيرها، فإن لم تشترط ذلك فلا مانع منه شرعاً.

(المعايير الشرعية، المتاجرة في العملات: ص. ٦٠؛ ، هيئة المحاسبة والمراجعة للمؤسسات المالية الإسلامية)

[viii] تجارة العملات عن طريق الفوريكس
وقد شاع في عصرنا التجارة في العملات عن طريق "سوق العملات الخارجية"  والذي يخفف فيقال: "فوريكس"...وإن هذه السوق لها طرق مختلفة للتجارة، وإن معظمها تشتمل على محظورات شرعية نذكر بعضها فيما يلي...
٢. شرحنا فيما قبل أن العملات الورقية عند كثير من العلماء المعاصرين والمجامع الفقهية في حكم الذهب والفضة، فيشترط في مبادلتها التقابض في المجلس. وإن هذ الشرط مفقود في معظم عمليات هذه السوق، فإنها تنقسم إلى عاجل وآجل. وإن التقابض مفقود فيهما، لأن ما يسمى "البيع العاجل" لا يقع فيه التقابض إلا بعد يومين من يوم العقد. وأما على الموقف الثالث الذي شرحناه ورجحناه، فإنه يجب في تبادل العملات المختلفة الجنس أن يقع القبض على إحدى العملتين في مجلس العقد. وهذا الشرط مفقود أيضا في هذه السوق. فإنما يقع البيع والشراء عموما عن طريق الكمبيوتر أو الإنترنيت.
٣. وكثيرا ما يبيع الإنسان ما لا يملكه، ولا يقع التسليم والتسلم في كثير من عمليات السوق، وإنما يصفى الباعة والمشترون عملياتهم بفروق الأسعار.
(فقه البيوع، المبحث السادس تقسيم البيع من حيث ربحيتيه: ٢/ ٧٦٣ - ٧٦٤؛ مكتبة معارف القرآن)

[ix] Garner, Carley. Currency Trading in the FOREX and Futures Markets. Upper Saddle River, NJ: FT Press, 2012, 13.

[x] Butcher, Kel. Forex Made Simple a Beginners Guide to Foreign Exchange Success. Milton: Wiley, 2011.

 

 

 

 

 

 

 

 

 

 

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