I decided to leave online trading while listining Dr. Zakir Naik vidio available on youtube and this;
Praise be to Allaah.
The Islamic Fiqh Council of the Muslim World League, in its eighteenth session that was held in Makkah al-Mukarramah from 10 to 14/3/1427 AH (8 to 12 April 2006 CE), has examined the issue of trading in margins, which means that the customer pays a small amount of the value of what he wants to buy, which is called a “margin”, and the agent (the bank or otherwise) pays the rest as a loan, provided that the purchase contract remains in the name of the agent as a pledge for the money that was loaned.

After listening to the research that has been submitted and the detailed discussion on this topic, the opinion of the council is that this transaction involves the following:
1 – Dealing in buying and selling for the purpose of profit, and this dealing is usually done in major currencies or financial certificates (shares and bonds) or some types of products, and it may include trade in options, futures and the indexes of major markets.

2 – Loans, which refers to the money given by the agent to the customer directly if the agent is a bank, or via a third party if the agent is not a bank.

3 – Riba, which occurs in this transaction in the form of fees for delaying the deal. This is interest that is charged to the purchaser if he does not make a decision on the same day, and which may be a percentage of the loan or a set amount.

4 – Commission, which is the money that the agent gets as a result of the investor’s (customer’s) dealing through him, and it is an agreed-upon percentage of the value of the sale or purchase.

5 – The pledge, which is a commitment signed by the customer agreeing to leave the contract with the agent as a pledge for a loan, giving him the right to sell these contracts and take back the loan if the customer’s losses reach a specific percentage of the margin, unless the customer increases the pledge in order to compensate for a drop in the price of the product.

The Committee believes that this transaction is not permissible according to sharee’ah for the following reasons:
Firstly: It involves obvious riba, which is represented by the addition to the amount of the loan which is called “paying fees for delaying the deal”. This is a kind of haraam riba. Allaah says (interpretation of the meaning):
“O you who believe! Fear Allaah and give up what remains (due to you) from Ribaa (from now onward) if you are (really) believers.
279. And if you do not do it, then take a notice of war from Allaah and His Messenger but if you repent, you shall have your capital sums. Deal not unjustly (by asking more than your capital sums), and you shall not be dealt with unjustly (by receiving less than your capital sums)”
[al-Baqarah 2:278-279]
Secondly: The agent stipulates that the customer must deal through him, which leads to combining both giving a loan for something in return and paying commission, which is akin to combining giving a loan and selling at the same time, which is forbidden in sharee’ah because the Messenger (peace and blessings of Allaah be upon him) said: “It is not permissible to give a loan and sell at the same time…” The hadeeth was narrated by Abu Dawood (3/384) and al-Tirmidhi (3/526), who said it is a hasan saheeh hadeeth. In this case he has benefited from his loan, and the fuqaha’ are unanimously agreed that every loan that brings a benefit is haraam riba.
Thirdly: Dealings that are done in this manner in the global markets usually involve many contracts that are haraam according to sharee’ah, such as:
1- Dealing in bonds, which comes under the heading of riba which is haraam. This was stated in a resolution of the Islamic Fiqh Council in Jeddah, no. 60, in its sixth session.
2- Dealing indiscriminately in company shares. The fourth statement of the Islamic Fiqh Council of the Muslim World League in its fourteenth session in 1415 AH stated that it is haraam to deal in the shares of companies whose main purposes are haraam, or some of their dealings involve riba.
3- Selling currencies is usually done without the hand to hand exchange which makes them permissible according to sharee’ah.
4- Dealing in options and futures. A resolution of the Islamic Fiqh Council in Jeddah no. (63), in its sixth session, stated that options are not permissible according to sharee’ah, because the object of dealing in these contracts is not money or services or a financial obligation which it is permissible to exchange. The same applies to futures and trading in indexes.
5- In some cases the agent is selling something that he does not possess, and selling what one does not possess is forbidden in sharee’ah.
Fourthly: This transaction involves economic harm to the parties involved, especially the customer (investor), and to the economy of the society in general, because it is based on borrowing to excess and taking risks. Such matters usually involve cheating, misleading people, rumours, hoarding, artificial inflation of prices and rapid and strong fluctuation of prices, with the aim of getting rich quickly and acquiring the savings of others in unlawful ways. Hence it comes under the heading of consuming people’s wealth unlawfully, in addition to diverting wealth in society from real, fruitful economic activity to this type of risk that has no economic advantage, and it may lead to severe economic turmoil that will cause great loss and harm in society.
The Council advises financial institutions to follow the ways of finance that are prescribed in sharee’ah and that do not involve riba and the like, and do not have harmful economic effects on their customers or on the economy in general, like shar’i partnerships and the like. And Allaah is the Source of strength.
May Allaah send blessings and peace upon our Prophet Muhammad and all his family and companions. End quote from Majallat al-Majma’ al-Fiqh al-Islami, issue no. 22, p. 229.
We ask Allaah to guide us and you.
And Allaah knows best.

Forex Fatwah by Karachi Darul Uloom

By Mufti Shafiq Jakhura
POSTED: 18 DHUL HIJJAH 1430, 5 DECEMBER 2009
Q.I am interested in the Forex SPOT trading business and would like to know if it is halal. The trading that I will be doing will be as follows:
Let's say, I invest $1,000, the broker invests or lends $99,000 and together we buy the currency like euro worth $100,000. The broker will not charge any interest on the money that he invested or lend, because it will be a Shariah compliant account.
- If the rate of the euro goes up and I decide to sell the euro. The broker will take a small share of the profit and rest is given to me
- If the rate of the euro goes down below a certain margin which is determined by the amount I invest, my broker will close the trade and take his money back and I will lose the money I invested.
Also, another place were interest may be involved is when the buying and selling is not done on the same day, then a rollover occurs which mean that either we have to pay interest or give interest on the currency you have bought, but the brokers is offering a swap free or interest free accounts for Muslims only, in which, even if you do not close the trade on the same day, they will not debit or credit any interest.
I am interested in Spot trading not Future trading. Please let me know if this type of trading is halal.
A.
Trading in this manner appears to be objectionable from a Sharia perspective and must be avoided. From your explanation, the contribution of the broker appears to be a loan. If this is the case and you make a profit when selling the currency, the broker is not entitled to any amount over and above his capital loan.
Any amount that he takes over this is deemed to be interest. On the other hand, if the contribution of the broker is deemed to be a capital contribution as a partner in the venture, then both partners must share in the loss as well, whereas, apparently, from your explanation, it appears as though the broker does not share in the loss. His capital is guaranteed.
Similarly, conventional forward exchange contracts and purchasing or selling of currencies on the futures market is also prohibited. These regulations are deduced directly from the Ahadith of Rasulullah (Sallallaahu Alaihi Wa Sallam).
A method of trading can be structured on the principles of musharaka (partnership). I suggest that you refer to the book An Introduction to Islamic Finance and thereafter, should you and your broker require any assistance and advice regarding how to structure such a partnership, you may contact us and we will endeavor to advise to the best of our ability.
Further, the Sharia has laid down certain guidelines and regulations when trading in currencies. It is necessary to uphold and maintain these regulations when trading in currencies. The most important of these regulations is that currencies of different countries can be traded in exchange of each other provided that the transaction is completed on spot (i.e. both counter-values should be exchanged at the same time), irrespective of whether the contract is concluded at above or below the spot rate. In other words both the counter-values are exchanged at one and the same time.
The exchange of both counter values and the subsequent possession acquired by the buyer and seller thereof, could take place through actual possession or constructive possession which is also acceptable. In order to enlighten you further on this, I quote hereunder from the Sharia Standards, prepared by AAOIFI:
" 2/6/4. Physical possession takes place by means of simultaneous delivery by hand.
2/6/5 Constructive possession of an asset is deemed to have taken place by the seller enabling the other party to take its delivery and dispose of it, even if there is no physical taking of possession. Among other forms of constructive possession that are approved by both Shari'a and business are the following:
(a) To credit a sum of money to the account of the customer in the following situations:
(1) When the institution deposits to the credit of the customer's account a sum of money directly or through bank transfer.
(2) When the customer enters into a spot contract of currency exchange between himself and the institution, in the case of the purchase of a currency against another currency already deposited in the account of the customer.
(3) When the institution debits - by the order of the customer - a sum of money to the latter's account and credits it to another account in a different currency, either in the same institution or another institution, for the benefit of the customer or any other payee. In following such a procedure, the institution shall adhere to the principles of Islamic law regarding currency exchange.
A delay in making the transfer is allowed to the institution, consistent with the practice whereby a payee may obtain actual receipt according to prevailing business practice in currency markets. However, the payee is not entitled to dispose of the currency during the transfer period, unless and until the effect of the bank transfer has taken effect so that the payee is able to make an actual delivery of the currency to a third party.
(b) Receipt of a check constitutes constructive possession, provided the balance payable is available in the account of the issuer in the currency of the check and the institution has blocked such a balance for payment......"

And Allah Ta'ala Knows Best

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