What is Shariah Compliant Trading / Islamic Forex?

Shariah is islamic law or principle. Shariah compliant forex trading context refers to the doing away of receiving and paying of interest or swaps, in the course of buying or selling of currencies in the forex exchange (forex) or commodities.

Experts in Shariah law from The Accounting & Auditing Organization For Islamic Institutions (AAOIFI) deliberated : "SWAPS are not permitted in the forms in which they are practiced in commodity exchange" (AAOIFI Shariah Standard, hlm 358).

Also, according to the prophetic saying of Muhammad (peace be upon him) : "Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt for salt, like for like, payment being made hand by hand. If anyone gives more or asks for more, he has dealt in riba (usury). The receiver and giver are equally guilty". 'Hand by hand', or hand to hand' also means the trading by spot. Hence, while spot forex is permissible, futures is not.

As Islamic shariah law forbids the receiving and paying of interest, many muslim traders look for islamic forex accounts to conduct their trading activities with a peace of mind. This without having to worry about balancing interest monies with their trading funds. Shariah compliant trading accounts are also open to anyone who prefers to use them, regardless of their religious affiliation.

Islamic, shariah compliant, swap free accounts, or interest free accounts, as they are called in various terms, may not be free of commissions or additional fees. The trader needs to check on each individual broker for their terms of service. Of course, the best brokers are those that do not charge any commissions and no additional charges whatsoever per trade. (Some brokers charge as much as $5 for each open post).

The trader also has to be kept informed of changes to their forex trading accounts, as the broker reserves the right to stop offering interest free accounts anytime they want. The trader should also be aware of some brokers that offer interest free trades for only a certain period of time. For example, after a position is opened for a certain number of days, a swap is then paid or charged. The trader will then have to keep track of his open positions.

The shariah compliant brokers below offer islamic forex trading accounts with no or minimum limitations on open positions, and without fees or with limited commissions.