Trading Halal – An Islamic Trader’s Guide
While many may not explicitly offer official religious permission for the practice of Forex trading within Islam, the following article will present you with both sides of this debate and offer instruction on how to seek out more information about halal and Islamic financial markets. For the purposes of clarity, halal or Islamic is used to describe a set of regulations and practices that are applied by Islamic law to transactions in the marketplace. Islamic finance is not to be confused with Islamic banking, which is commercial banking influenced by Islamic beliefs and principles.
A halal or Islamic trading account is one in which the trader is allowed to open a credit facility whereby capital is allowed to be added, at any given time, to cover the costs of brokerage. One of the conditions that are often placed on this type of account is that the total value of the transactions performed on it must not exceed the total of the trader’s available trading account balance. This stipulation was made so that traders would not inadvertently exceed the amount of trading currency that they can possibly hold at any one time.
Many traders prefer to operate via an automated platform. This is because the decisions that need to be made while trading are typically very complex and have many different outcomes that need to be considered. Therefore, manual analysis of each trade is simply not possible, as it would take up too much time and would most likely result in a loss of profit rather than an increase. The automated Forex trader that is run via a computer system or a software program is only permitted to enter trades on the basis of programmed algorithms, therefore avoiding the possibility of human error.
There are a few forms of Islamic financial products that can be traded online. Two of these are the “Swap and Share” and the “halal” or Islamic Payment Exchange. In the case of the swap and share, a trader normally purchases a quantity of one kind of currency and then simultaneously sells another kind of currency of the same kind. In the case of the halal account, this is extended to include interest payments. The nature of interest payments being applied to Islamic financial products is not fully understood by the general public.
Another aspect of halal trading is the “HRD”. This stands for “hrm” or “exchange”. Under this scheme, a particular currency will be traded for another in an effort to make a profit. HRD is permitted as long as it is necessary for the economic benefit of those who are involved in halal finance.
Some Muslims feel that the use of automated Forex accounts is forbidden under Islamic law. They base this accusation on a number of reasons. One reason is that the automated systems cannot effectively deal with real time trade. Automated Forex accounts trade only in pairs. It is impossible for a Forex robot to track changes in the pair you choose to trade in real time, such as the euro/dollar or yen/dollar.
Automated Forex accounts are permissible because the traders are allowed to take their time while they decide which currency pairs to trade in. The fact that automated systems cannot monitor every activity in the market leads to a haram (forbidden) scenario. Some Muslim traders believe that the use of an automated system is prohibited because of the possibility of exploitation of loopholes in Islamic laws. While this is possible and can happen, it is also unlikely.
As an Islamic trader, you should always remember that whatever you put in your trading account, it will be returned to you. You may have to take some time to figure out what to do with certain amounts of money in your trading account, but that is part of learning how to be a good Muslim consumer. You should understand that each situation is unique. While you may have to take some time away from your regular job to learn how to be a good Muslim trader, the decision of opening an Islamic trading account is one that you should not regret.