A Detailed Insight Into Islamic Forex Trading Account

The forex market is recognized as the largest financial market in the world with millions of users trading across the globe. People from various nationalities, cultures and religious beliefs are actively involved in forex trade practises. However, to appeal to a wider section of the society that involves potential customers,  it becomes very important for various forex brokers to facilitate a warm and welcoming environment and understand the distinction of religion that might cast doubts upon the practises of forex trading. 

Certain religions like Islam impose various restrictions on trade practises. The Shariah law or the Islamic law forbids the Muslims to earn interests or “Riba” on their givings. This also prohibits them from earning interest on forex trading activities. In order to find an appropriate solution to this issue and make it feasible for Muslims to practise forex trading, various forex brokers have introduced a form of trading account known as the Islamic trading account. This type of trading account works on the principles of Islamic finance and is quite different from regular forex trading accounts. 

So What Exactly Is An Islamic Trading Account?

Islamic trading accounts are also known as swap-free trading accounts. A swap is referred to as the interest that a trader pays or earns for a trade in order to keep that trade position open overnight. As Islamic law forbids the gathering of interest therefore, forex traders with Islamic accounts do not receive or pay interests on their trading activities. The transactions in Islamic accounts should be carried out without any delay according to the laws of Islamic finance and currencies should immediately be transferred from one account to the other. Any transaction costs should also be immediately paid. 

Some Features Of An Islamic Trading Account

There are some features of a halal forex account that can be taken into account:

• There is a strict prohibition on paying or receiving swaps in order to keep a trading position open overnight. 
• Because an Islamic trading account has a certain set of complicated principles to be followed therefore, traders owning this type of account can not trade in some of the exotic currencies of the forex market. 
• Since, brokers offering an Islamic account are incapable of charging any interest on trade activities therefore to compensate for this loss of revenue they substantially apply wider spreads. 

Advantages Of Using An Islamic Trading Account

By using an Islamic trading accounts Muslim traders can enjoy several benefits and remain in compliance with their religious beliefs and principles. 

• One of the biggest advantages of using an Islamic trading account or a swap-free trading account is that there are no interests. This can benefit a trader a lot as it allows them to keep trade positions open for long durations without fearing the risk for a reduction in returns due to swap commissions. 
• Muslims traders can easily open trade positions in those currency pairs which charge very high swap commissions. 
• By using an Islamic trading account, muslim traders can easily get involved in trade practises and simultaneously abide by their religious beliefs. 

How To Choose A Good Islamic Trading Account

• An Islamic trading account is somewhat different from a regular forex trading account therefore, it is very important to choose a broker that has a team of well-versed experts who are eligible to handle your queries related to your account efficiently. 
• The broker platform that you pick for opening an Islamic account should have a good market reputation and a streak of successful records. This further adds to the credibility of the broker and helps you to make an informed decision regarding your trading strategies. 
• Traders should choose a platform that facilitates easy withdrawal options during regular intervals as well at times of specific urgencies. 
• The platform should offer a transparent record of its credibility and working over the course of time and should inform traders about their fees and commissions along with hidden charges if any. 
• The platform offering an Islamic trading account should do so by following the rules and regulations set by Islamic finance. 

Strategies To Perform Halal Trading By Using An Islamic Trading Account 

There are certain trading strategies that a Muslim trader can use to perform halal trading by using an Islamic trading account

• Day Trading- This type of strategy consists of opening trading positions that will be closed during the end of the trading session before the forex market closes for the day. Sometimes when a trader opens a trading position at the start of the session he might notice that towards the end of the day the trading position might make substantial profits. This anticipation of profits might want him to keep his trade position open during the night. In case of a regular account a trader will have to pay a certain amount of swap fee for keeping the positions open through the night. In the case of an Islamic account a trader can keep his positions open through the night but without paying any commission or swap fee. 
• Scalping- This type of strategy consists of opening trading positions that are supposed to be closed within a short period of time, in a few seconds or minutes. In scalping as positions are quickly closed there is no need to pay any commission or interest on it. A standard account can be used for practising this trade too however if a trader wishes to maintain his trading position for a longer duration of time because of anticipation of profits, he will be then subjected to pay a certain interest. This is however an exception in case of an Islamic account as positions can be maintained for a longer duration without paying any interest.  
• Swing Trading- This strategy involves maintaining a trade position open for several days or sometimes even weeks. In such a case an interest can not be avoided. This is however an exception in case of an Islamic account. 

Final Words

Forex trading has become a trend among people these days due to the huge possibility of earning profits it provides. For people who do not have an idea about how forex trading works and how to benefit from it, can do some research beforehand in order to get an insight. 

Before you plan on opening an Islamic account, it is very important to choose a good broker platform who offers various features, services, and trading conditions in compliance with the rules and regulations of Islamic finance. In order to gain maximum benefit from your preferred trading account, it is very important to first understand its features and working and how it can benefit you in the long run.