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Introduction – Why are normal Forex accounts not Sharia compliant (“Halal”)?

Standard Forex trading accounts tend not to be Sharia compliant due to the practice of charging overnight swaps. Forex accounts either receive or are charged a fixed rate of interest when a trader holds a position overnight. Whether an account receives or is charged a rate of interest depends on the borrowing costs for the two quoted currencies, though many brokerages add in an extra charge to cover the costs of financing a position overnight. It should be clear that the practice of charging overnight swaps would in breach of Sharia law and this is why standard Forex accounts aren’t strictly compliant with Islam.

 Best Trading Account for Practicing Muslims

Updated: March 13, 2018 – Tuesday, March 2018
Jumada Al-Akhirah 1439 – Rajab 1439

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Additional Muslim Forex Account Providers:

What is an ‘Islamic’ account?

Islamic (or Sharia, Halal, Muslim) accounts are special accounts designated for those unwilling to pay/receive daily interest fees as a result of their trading activity. Islamic accounts also do not pay interest on the funds deposited with the FX broker (as some FX brokers bow offer bonuses including account balance top-ups simply for maintaining funds in your trading account).

Why are Islamic accounts offered?

Islamic accounts are exactly the same as regular FX trading accounts minus the interest fees/payments. The reason behind this prohibition is the belief that Muslims should give for the sake of giving and not in order to get something in return. According to Islamic Law, it is forbidden to take or give interest of any kind and Islamic Forex accounts were designed with this in mind.

Islamic account eligibility

FX brokers will offer Islamic accounts and some will ask for some evidence of the client being a Muslim. However, given that religious beliefs are a personal thing, and not a bureaucratic signpost, most brokers simply take the clients word for it. As part of the Terms and Conditions, FX brokers tend to stipulate that any abuse of this zero-interest provision will be immediately remedies and appropriate charges reinstated in full.

Also, it is worth mentioning that although FX brokers waive the interest charges for clients — they must still pay interest charges themselves to their liquidity providers who will not offer Islamic accounts. Apart from being a messy exercise, these costs are passed onto Islamic account holders via wider spreads, higher commissions or flat service fee charges added to their trading statement at the end of the month.

Unfortunately, in the land of financial services, everyone pays the pied piper, including those of the Muslim faith.

Are Halal accounts new?

Zero-interest trading accounts are nothing new and brokers have been offering this type of service for years. As increasingly more people have engaged in trading at the retail level, Muslim accounts have been something people have asked for. Brokers have responded by providing accounts that suit the requirements of Muslims and continue to offer these accounts on a regular basis upon request.

Why are normal Forex accounts not Sharia compliant (“Halal”)?

Standard Forex trading accounts tend not to be Sharia compliant due to the practice of charging overnight swaps. It is a staple of the FX market, to see overnight swap rates charged on all trades done.

Forex accounts either receive or are charged a fixed rate of interest when a trader holds a position overnight. Whether an account receives or is charged a rate of interest depends on the borrowing costs for the two quoted currencies, though many brokerages add in an extra charge to cover the costs of financing a position overnight. It should be clear that the practice of charging overnight swaps is in breach of Sharia law and this is why standard Forex accounts aren’t strictly compliant with Islamic practises.

This is easily remedied simply by contacting your broker and finding out the details. Do be careful about the exact Terms and Conditions, because some brokers often levy exorbitant fees as a means of recouping the lost/gained interest charges which tend to be negative for most tradable currency pairs.

Here is an example of how a prominent FX broker addresses the issue of Islamic accounts — simply adding a ‘fee’ to all transactions and changing the terminology from ‘interest’ to ‘fee’:

Note the complete lack of availability of Islamic accounts for corporate entities — Islamic accounts are an entirely retail-market phenomenon especially created to attract clientele. Some brokerages will simply waive the overnight swaps without labelling the account ‘Islamic’. Typically, brokerages will waive various fees including interest, if a client has deposited a significant sum of money with the firm and is trading actively.

This is why Islamic accounts often require traders to deposit a significant sum of money. In some cases brokerages will waive the overnight charges but charge Islamic accounts a slightly wider spread in order to make up for the lost overnight swap fees.  Alternatively, some Forex brokerages offer Islamic accounts where there are no overnight swaps, but where the brokerage takes a share of customer’s profits again in order to make up for lost overnight swap fees.

Islamic trading accounts are becoming increasingly popular not only with practicing Muslims but with those who want to hold positions for a significant period of time without occurring overnight costs.

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