Muslim-Friendly Forex Brokers

Islam as a religion places clear-cut guidelines on the kinds of investments that practitioners can make. The whole essence of an Islamic-style financial investment is to ensure that any kind of exploitation of the other party is prevented.

 

Islamic Broker Accounts 2017:

Broker Info Bonus US Traders Open Account
FXOpen UK Spread: 0 Pips (ECN Account)
Leverage: 1:500
Minimum Deposit: $300
Demo Account: No
Visit Broker Read Review
IronFX Spread: 2-3 pips
Leverage: 500:1
Minimum Deposit: $500
Demo Account: Open
60% Welcome Bonus plus Trading Contests Visit Broker Read Review
HY Markets Spread:
Leverage: 300:1
Minimum Deposit: $50
Demo Account: No
35% First Deposit Bonus! Visit Broker Read Review
Varengold Bank FX Spread: 2 Pips
Leverage:
Minimum Deposit: $2500
Demo Account: No
N/A Visit Broker Read Review
FXNet Spread: 2.3 pips
Leverage: 500:1
Minimum Deposit: $5
Demo Account: Open
35% New Account Bonus! Visit Broker Read Review
SkyFX Spread: 1.7 Pips
Leverage: 300:1
Minimum Deposit: $100
Demo Account: No
Visit Broker Read Review
XM Spread: 1 Pip
Leverage: 888:1
Minimum Deposit: $5
Demo Account: No
$30 No Deposit and 50% Deposit Bonus! Visit Broker Read Review
FXCM (Forex Capital Markets) Spread: 1 Pip
Leverage: 1:200
Minimum Deposit: $50
Demo Account: No
NA USA Allowed Visit Broker Read Review

 

 

What are Muslim-Friendly Brokers?

islamic accountsSo before we can go on to talk about Islamic brokers accounts, we have to define what an Islamic investment is all about.

a)    A financial investment that follows Islamic principles is one which must be socially responsible. Investments which therefore promote undue profiteering, racketeering and exploitation of one segment of society over another is therefore not in tandem with these principles.

b)    The investment must be interest free, since interest is deemed to skew social justice in Islam.

c)     Such an investment must be on products deemed wholesome. Investment in products which are alcohol-related, or are derived from foods deemed to be haram (such as pork and hog meat), gambling or pornography are prohibited. As such, while the trading of currencies in itself is not un-Islamic, trading of commodity contracts on hogs contravenes Islamic principles. Earning swap interests on overnight forex contracts and trading of binary options (considered as a form of gambling in many countries) also contravenes Islamic principles of investment.

Thus an Islamic broker account must be seen to conform to all these principles. The process of a brokerage setting up an Islamic account is not a simple one. First, the brokerage must first consult a group of Islamic scholars (jurists) who will thoroughly vet the investment product(s) to ensure compliance with Islamic Law, as well as conduct a continuous process of due diligence to ensure that variations are not introduced to the produce which then negate the Islamic principles originally adhered to. The vetting process draws its guidelines from the Quran, the Sunnah (rules drawn from the Hadiths; the sayings and actions of Prophet Muhammad) as well as the Qiya and Ijma, which are scholarly legal deductions and the consensus of several scholars on the issue respectively, in descending order of importance.

This process ensures that whatever product is introduced to the market does not in any way deviate from the Islamic principles regarding investment.

 

Components of an Islamic Broker Account

An Islamic broker account must therefore be seen to satisfy the following criteria in order for the products to be an investable product:

1. The commodity or underlying asset must be owned by the trader at the time of sale in the market. Therefore short selling (in which the asset is borrowed from the broker and sold at a higher price, then bought back at a lower price for return to the broker) is in contravention of Islamic laws on investing. Short selling is therefore not allowed on an Islamic broker account. In contrast, you can sell a currency because you have to use your account denominated currency to purchase a currency being sold in exchange for another one. So the trader actually owns the currency and so a forex account which does not earn on overnight swap will qualify as an Islamic broker account.

2. Forward sales are not allowed. Therefore an account which trades on forex futures cannot be an Islamic broker account.

3. Some brokerages allow traders to merge forex, commodity and stock trading into one account. Once commodities listed as haram (alcohol, stocks of cigarette or alcohol manufacturers or companies dealing in pork) are listed for trading in this account, the account is not an Islamic broker account.

4. The price of the asset must be fixed and known to all parties in the trade. An Islamic broker account which handles forex transactions must therefore operate with a fixed spread.

It can be seen from this discussion that the forex market is one of the few individual markets which can feature an Islamic broker account without fear of contravening the laws of the religion. You are not likely to get an Islamic broker account in the binary options, commodity and futures market. However, “riba”, which is interest charged on, or paid on money (which is done in the carry trade, or on overnight swaps) is forbidden by Islamic dictates on the matter. So there are various ways to handle your forex investments so as to act in conformity with Islam.

 

–       You can decide to be a strictly intraday trader. All positions must be closed by the end of the trading day. If you have a normal forex broker account, this practice can turn your account into an Islamic broker account.

–       Your broker could limit the interest earned or paid on overnight swaps, or disable it altogether.

–       You could take the excess money that accrued from any overnight positions, and donate it as Hibah to an Islamic-approved charity.