Islamic account is a regular account for Forex trading, but without fees in the form of interests. Under Islamic laws, Muslims are prohibited from taking or giving interests from any kind of activity. It’s with this in mind that Islamic Forex accounts were created.
No fees in the form of interests apply for Islamic accounts. The fee for rolling over a position to the next trading day (rollover fee) in the Forex market may be used as an example of this interest payment, which is made at the time of carrying over an open position to the next trading day. The rollover fees are not charged on Islamic Forex accounts.
What’s Swap-Free Account in Forex?
A swap-free account (“account with no swaps”) meaning is the same as an Islamic account. An integral part of Forex trading is payment of various fees in the form of interests, for example, rollover fees. All these fees don’t apply to Islamic Forex accounts. That’s why they’re also called interest-free accounts.
Why do the Sharia Laws Prohibit Dealing With Interests?
The Sharia laws, namely, the Islamic laws, prohibit giving or taking interest in any form. The reason for this prohibition lies in the belief that observant Muslims should give only for the sake of giving, but not for taking something back. That’s why interest-free Islamic Forex accounts were created.
What Rules Regarding Forex Trading Were Established by Islamic Scholars?
As in the case with stocks and various types of online trading, disputes over the compliance of Forex trading with the norms of the Islamic Sharia are still going on. Nevertheless, a large number of Islamic scholars set out the cautionary rules. If observant Muslims adhere to these rules, they may trade in the Forex market.
Recommend Me a Broker Offering Islamic Accounts
As with regular accounts, you need to search for Islamic accounts carefully and with proper responsibility. First, you need to read reviews about brokers on Forex related websites. Compare various brokers and only then choose one of them.
Who May Open Islamic Account?
Depending on the broker, Islamic account may be opened automatically or by sending a request to the support service.
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Where Does the “Rollover Fee” Come From?
The Forex market closes at the end of every day. If a trader wants to hold a position open overnight, he/she will have to pay the rollover fee. This is an interest payment made for carrying over an open position to the next trading day. The fee is calculated based on the difference between interest rates. For example, 1.75% (NZD) – 0.5% (USD) = 1.25%. Next, we divide the difference by 365 days and get the interest to be paid. By the way, swap can be both positive and negative.
Riba is the Arabic word for “interest”. According to the Islamic laws, the riba shall be prohibited: they state that observant Muslims should give without requesting to take something back, such as an interest. Islamic Forex account doesn’t deal with the riba, so it’s also referred to as swap-free or interest-free account.
“Musharaka” is a partnership or joint venture established for doing a particular type of business and with intent to make a profit, while profit and losses are distributed according to the predefined ratio among all the parties involved.
The term refers to gift or donation for a loan given. Many brokers, who offer Islamic Forex accounts, provide a service in the heeb: they devote traders’ profits to charities allowing for the state of their accounts and positions opened in the Forex market.
What’s the Dark Side of Islamic Forex Accounts?
While interest-free Forex accounts seem appealing, they’re not without some disadvantages. For example, they have a higher minimum investment amount and a lower leverage.
What are the Advantages of Islamic Forex Accounts?
Forex Islamic accounts aren’t for everyone but if you’re a trader, who roll over open positions to the next trading day, these accounts will be perfect for you. Islamic accounts enable you to hold your positions open overnight without the need to pay rollover fees.
Are Islamic Forex Accounts Contrary to the Islamic Laws?
There is an ongoing debate between Islamic scholars about whether Forex trading is allowed for observant Muslims. At present, opinions of the scholars are divided: some believe it’s OK, while others prohibit it completely due to the fact that interests are included in some fees. The following conditions must be met so that Forex trading complies with the Islamic laws:
- Buy and Sell trades must be made in the currency spot market and without delay.
- Currency of a trade must be transferred to the accounts owned by both sides of a trade/a trade must be settled in a single currency by both parties.
- The full amount of money must be paid for a trade in full, not in parts.
- All trades must be made without awarding/charging interests.