Using the leverage system in Forex transactions
Fatwa No: 274720

  • Fatwa Date:10-1-2015 - Rabee' Al-Awwal 20, 1436
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Question

Essalem alikom , My question is about on Online Forex Trading. My question is as follow with a little introduction on Forex. "Forex, or Foreign Exchange, is the simultaneous exchange of one country’s currency for that of another. We provide foreign exchange for the purpose of investor speculation. The investor wishes to purchase or sell one currency for another with the hope of making a profit when the value of the currencies change in favour of the investor, whether from market news or events that takes place in the world. Currencies are usually purchased by the lot, where the lot represents 100,000 units of the base currency. Depending on whether the trader believes a currency pair will increase or decrease, the trader will either buy lots or sell lots of the pair and try to make a profit from market movement." Now the normal accounts which are offered contains dealing with Interest. So I asked them for an account which does not have any relationship with Interest either in dealing with it or in consumption. They told me that they do provide accounts for Muslims. Quote "In respect for the Muslim religion, some forex companies ( Brokers ) are willing to extend a courtesy to Muslim clients whose religion prohibits them from paying/receiving interest. If you wish to trade interest-free you will incur an additional charge of 3 dollars per lot traded (round-turn) on the regular account. I read in the fatwa's that all the leverage system in the forex is prohibited, so i tried to open an Islamic account without any leverage ( i buy with my own money, not the money of the broker ), but when i start trading i find that the broker take the diffrence of the profit between the buy and sell price ( as 3 pips for the EURUSD currecny) even if you use your own money to buy, i ask you if now is it better for me to use the leverage system since i always pay the sell/buy diffrence. Thank you for your

Answer

All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad, sallallaahu ‘alayhi wa sallam, is His slave and Messenger.

We have already clarified in previous Fataawa, among which is Fatwa 262402, that it is not permissible to transact in accordance with the money leverage system, and that it amounts to a loan that brings benefit for the broker because he gets profits as a result of being a mediator through whom the debtor takes loans, and therefore it consists in Riba.

The fact that the mediator receives the same commission whether or not the investor  transacts in the money leverage system does not legitimize transacting in it as we have clarified in Fatwa 88475.

It should be noted that doing business with the Forex system involves many violations of the Islamic law, like Riba, but if the company provides a system that is free from such violations and the condition of exchanging hand-to-hand is met during the conclusion of the transaction, then it is permissible to trade currencies, gold and silver; otherwise, it is not.

Allaah Knows best.

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