The popularity of trading the world’s currencies has spread far and wide across the globe, garnering support from several cultures with differing religious beliefs. In order to accommodate all potential traders, the market has responded with customized offerings to appeal to the unique elements of each culture, whatever they may be. The prevalence of Islamic forex accounts is one example of these specialized offerings.
The need for a different approach for Islamic traders revolves around two aspects of Shariah Law, namely, “Riba” and “Gharar”. Brief definitions of these two terms from sources on the Internet are as follows:
“Riba”, commonly thought to mean “interest”, is best described as a loan with the condition that the borrower will return to the lender more than and better than the quantity borrowed. Riba is forbidden under Islamic law.
“Gharar” is an Islamic finance term describing a risky or hazardous sale, where details concerning the sale item are unknown or uncertain. Gharar is generally prohibited under Islam, which explicitly forbids trades that are considered to have excessive risk due to uncertainty.
Whereas the first term, “Riba”, is commonly understood, it is the second term that puts the heaviest restrictions on how an Islamic follower must act within today’s volatile currency markets. “Gharar” is typically found in all derivative contracts, and, for this reason, Muslims are forbidden from trading in forwards, futures, options, short selling, or speculation in general where the future delivery value of an underlying asset is in doubt or uncertain. Trading on the “spot” market, however, is considered within the rules, according to most Islamic jurists.
“Riba”, on the other hand, has led to the issuance of a special Islamic forex account that prevents the advent of this condition, as would happen on most other accounts. The majority of forex brokers have offered these accounts to attract additional customers around the world. These accounts are similar to other accounts with the following differences:
Research the topic and reach your own conclusion before opening an Islamic account offering.
Guest Article by Tom Cleveland from Forex Traders