What is an Islamic Forex Trading Account?admin 1 November 2021
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An Islamic Forex trading account is a type of trading account that allows Muslims to trade without paying any interest rate or commission. Based on the Islamic rules, the followers are not allowed to pay or receive any kind of interest. For example, if a Muslim takes a loan from an Islamic bank, the bank is not allowed to charge him any interest.
Although many Islamic banks do not obey such rules, many Muslims still believe in them and always obey them. To solve this issue, some brokers offer swap-free trading through Islamic forex trading accounts.
What is an Islamic Forex Trading Account?
It is a Halal trading account offered to Muslims who want to invest in financial markets and obey the principles of Islamic finance. These accounts are not necessarily called Islamic forex trading accounts, and some brokers call them swap-free accounts. Islam prohibited receiving or paying interest, so traders who use these accounts do not pay or receive interest rates.
The delay of transactions was another issue for Muslim traders, and some brokers solved it by offering immediate execution of transactions in these types of accounts. In addition, the traders must pay the transaction costs immediately, and the Islamic accounts enable them to do so. The number of brokers that offer and advertise such accounts is not so high because they provide less profit for both brokers and traders.
Different trading styles with Islamic forex accounts
Traders who like the trading styles with short-term time frames such as day trading and scalping do not need to use Islamic accounts all the time. Day traders usually tend to close their positions before the end of market working hours. That is why they do not have to pay any interest rates. But sometimes, their positions may start to generate profit in the last minutes of working hours on a trading day.
Traders may feel that they need to keep their position open during the night to receive more profit. In such a situation, when they use the Islamic forex trading accounts, there will be no problem for them. However, they can not obey their religious rules and keep their positions open overnight while using a standard account.
Muslim scalpers can always use standard accounts without any concern. Scalping involves doing a high number of highly short-term trades in a working day. They do not keep their positions open for more than a few minutes, and they do not have to pay any interest rate.
Muslim traders who like long-term trading styles such as swing trading must use Islamic forex trading accounts. They have to keep their positions open for several days, which is why they can’t use standard trading accounts.
Pros and Cons of the Islamic forex trading accounts
Islam prohibited swaps but sometimes, paying swaps enables traders to make a larger profit. Muslim traders cannot benefit from carry trading and receive the positive interest payments that are usually paid to some short positions.
The brokers that offer Islamic forex trading accounts have to charge clients a fixed fee because this is the only way they can benefit from such accounts. This is not against the Islamic rules, and even the banks in Islamic countries use the same method.
The biggest advantage of using an Islamic forex account is that traders do not pay any swap commission. They can use this feature to open long-term positions without facing the risk of reducing their profits as a result of swap commissions. The other advantage of using these accounts is that traders can trade the currency pairs with high swaps without paying anything. Usually, the exotic currency pairs generate high swap costs.
The Forex market is an attractive place for anyone who wants to trade. This market has the highest trading volume globally. It provides countless opportunities for everyone to make some profit. However, there are some obstacles for some people, such as Muslims, to enter this market. Islam prohibits some financial activities, and some brokers offer Islamic forex accounts to solve these problems.
The main feature of these accounts is that they are swap-free. It means that traders do not have to pay any interest rate using these accounts. Many Muslims and Islamic financial institutions do not obey these laws anymore, even in the heart of Islamic countries. However, these accounts enable Muslims who have a strong faith in their religious laws to trade in the forex market.
What is a Swap?
Keeping the trading positions open for more than 24 hours on brokers requires paying some fees called swaps. These fees are a kind of interest rate, and paying or receiving interest rates is prohibited in Islamic laws. Based on these laws, financial institutions, banks, and people cannot receive interest rates, and nobody is allowed to pay them either.
What trading platform is used for Islamic accounts?
Brokers that offer Islamic accounts use MetaTrader, which is also the most popular trading platform in financial markets.