#1094: Forex Trading: Ruling Of Islam

بسم الله الرحمن الرحيم

الحمد لله رب العالمين والصلاة والسلام على رسول الله صلى الله عليه وسلم وعلى آله وصحبه أجمعين ومن تبعهم بخير إلى يوم الدين و بعد

Assalamu Alaykum Warahmatullah Wabarakaatuh

Honored brothers and sisters in the Din You are welcome to this mornings session of the Halqah Session. Barakallahu fikum

Insha Allah, today we shall be treating the topic: FOREX TRADE and its Ruling in the Shar’iah.

We ask Allah to bless the little we will he saying and to make it beneficial for us and you. Amin
Ahsanallahu Ilaykum

Know may Allah bless us and you, that the Fuqahaa of Islam past and present, from the diverse Madhaahib have agreed to the Precept of Fiqh that says :

الحكم على الشيء فرع عن تصوره

“The Ruling on a Matter is a Necessary Result of having the Right Perception of it”

Shaykhu Al-Islam Ibn Taymiyyah rahimahullah mentioned this in the Majmu’atu Al-Fataawah. It’s also mentioned in Ghamzu ‘Uyuni Al-Basaa’ir, Al-Bahru Ar-Raa’iq, Mughni Al-Muhtaaj and in many other places. For this reason the Fuqaha are at agreement that ruling on a Matter that one has no thorough understanding of is Haraam and leads to Hirmaan.

Ibn Qayyim Al-Jawziyyah rahimahullah said in the Nuniyyah:

إن البدار برد شيءٍ لم تحط
علماً به سببٌ إلى الحرمان

“Hastening to reject a thing the knowledge of which hasn’t bee duly known is a cause for Hirmaan”

What is Hirmaan?
Hirmaan is deprivation. It is for Allah to deprive a person of being correct on a matter or been upon right.

For this reason, it’s very imperative that we understand what Forex is that we may be able to say a thing about it. Barakallahu fikum.

Forex is a short for Foreign Exchange and it typically means the trading of one currency for another. Such as Exchanging the Naira with the Dollar, etc. The Forex Market is the largest most liquid market in the world where trillions and more dollars change hands and ownership everyday And it is the bane of inter country currency relations world wide. Usually, there is no physical and centralized place where this takes place but virtually a network of banks, individuals trading electronically. Prices of currencies are benchmarked mostly against another and are determined by the forces of the market and the tendencies and expectations that people project for a particular currency. All of these factors and other factors such as the economies of different countries determined the prices of these currencies.

To give an example of how a Forex Trade can happen to result into main gains, let’s consider the following: An investor predicts that in the coming months the European central bank will ease its monetary policy due to some factors and assumes that the euro will fall against the dollar. He therefore decides to sell his Euro against the Dollar at a less price than it is currently, say an amount a little less than the current price. If indeed, the European Apex Bank actually easens its policy and the Euro falls against the dollar for an amount speculated by the investor, it’s fall will actually be more than the Investor sold his Euro. This will lead to a high gain for the Investor as he sold his Euro at a price less than the regular amount at that time but much higher than it would have worth in a few weeks after his sell.

Mostly, Forex Trade happens through Brokers and Banks who serve as intermediaries between Investors and the Market. They help investors and traders wade through the unknown matters of the markets.

This is what Forex at the Global Scene looks like in a glimpse. There are other intricacies in reality that are beyond the scope of this discussion but we sufficed only by referring to the bottom line, and Allah knows best.

In Nigeria, Forex goes to as high as 450 Million Naira in Daily Volume exchanges based on speculations on the rise or fall of the currency.

Not all Forex is in the Digital or Online Market, you have changers at every airport and by road sides in places considered to be beneficial by changers. If for instance you want to travel by air and you want to change the Naira to Dollars. The price of your change will be determined by the Real Time Exchange Rate plus the Profit Margin that your changer charges on his own. You may change at N360 for a USD where the rate is N340 and your Changer’s Margin is N20 per USD.

What then is the Ruling of the Shar’iah on this?

There is no doubt that Currency Exchange is Permissible in Islam. The Ruling of the Shar’iah for Currency Exchange is to be realized in two descriptions.

The first, that the Currencies are of different types.

In this case, it is permissible provided the exchange happens once the deal is done.

One of the reasons behind this is that in delay is the room that the prices and exchange rates may change given the fact that neither the buyer nor the seller have absolute control on the prices or the factors that influence the price changes.
When there is a delay therefore, it is a form of Riba Transaction that has been forbidden by the Shaari.

The second, that the Currencies are of the same type such as a Naira for Naira. In this case, such an exchange is only permissible if two Conditions are met.

First that there is no delay, a condition shared with the first description

Second, that they are of equal amounts.

In the Hadith recorded by Imam Muslim from Ubaadah bn As-Saamit radiyallahu anhu, the Rasul salallahu alayhi wasallam said:

“‏ الذَّهَبُ بِالذَّهَبِ وَالْفِضَّةُ بِالْفِضَّةِ وَالْبُرُّ بِالْبُرِّ وَالشَّعِيرُ بِالشَّعِيرِ وَالتَّمْرُ بِالتَّمْرِ وَالْمِلْحُ بِالْمِلْحِ مِثْلاً بِمِثْلٍ سَوَاءً بِسَوَاءٍ يَدًا بِيَدٍ فَإِذَا اخْتَلَفَتْ هَذِهِ الأَصْنَافُ فَبِيعُوا كَيْفَ شِئْتُمْ إِذَا كَانَ يَدًا بِيَدٍ

“Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by dates, and salt by salt, like for like and equal for equal, payment being made hand to hand. If these classes differ, then sell as you wish if payment is made hand to hand.”

And there are several other Ahaadith to this effect in the Books of Fiqh. The Ulama are agreed on this.

This means that basically, the Shariah allows for Currency exchange without a doubt. However, most Forex Brokers today stipulate on the internet what contradicts the Shariah. Of such stipulations that are Haraam include a stipulation of interest if the deal is not used on the Day that it is made. Meaning, they permit that the exchange does not happen when the deal is made but on exchange for a price. We already mentioned that the condition of exchange in THE Shariah is that it happens once the deal is made. So with this stipulation, it is two impermissibilities at the same time. The impermissibility of later exchange, and then the impermissibility of charging a cost based on that.

Another Involvement of Today’s Exchanges that make it impermissible is the MONEY Leverage System. Leverage is the use of borrowed capital to fund a business or undergo a Business Project in exchange for Interests. Investors use Leverage to increase their trading positions beyond what would be available from their cash balance alone. Mostly, these Brokers provide an Investor this Leverage and get Interest on this once the deal is made. This is Haraam for the Fuqahaa of Islam are agreed that any form of Debt that brings premeditated profit and benefit is Haraam and a form of Interest that Allah has cursed.

For this reason, Forex Trading over the internet in the situations with which they are done today are impermissibile due to what they contain of Ribaa and Haraam Stipulations.

This position we have elucidated is what is shared by most of the Fuqahaa in the world of Islam today, and Allah knows best. And because we have stated that Currency Exchange is not Haraam, if there are means and methods and dealers that deal with these but that do not deal in the Haraam ways we have identified, then that will be permissible Allah willing.

We ASK Allah to forgive us where we have erred and to strenghten our feet on the Path of His Din.

Barakallahu fikum
Jazakumullahu Khayran

سبحانك اللهم وبحمدك اشهد ان لا اله الا انت استغفرك واتوب اليك

Assalamu Alaykum Warahmatullah Wabarakaatuh

Alhamdulillah Awwalan Wa Aakhiran

Rabi’u Al-Aakhir, 14th 1442
November, 29th 2020