The Forex market is the world’s most heavily traded market. Analysts estimate that around $4 trillion in currencies are traded daily. This alone speaks volumes. It is estimated that there are between 49-51 majority Muslim countries in the world. Demographics may change, but in those countries, at least 50% of the population is Muslim. Most Muslim majority countries are located in the Asia-Pacific region which spans Indonesia to Turkey or Arab countries. With some 2 billion Muslims in the world, their population comprises around 27% of the global population. For these reasons, it is increasingly important to understand the trading needs and preferences of this major segment of the global population.
Forex trading has grown in leaps and bounds since the global financial crisis of 2008. Trading now allows everyday folks to dabble in the financial markets, without going through institutional brokerages. Muslim countries enforce the Sharia Law system which forms the basis of the legal system throughout Muslim society. Sharia law expressly forbids Muslims from accepting or paying fees or interest payments from transactions or financial loans. Therefore, many binary options trading companies and FX trading companies are now in the business of providing Islamic Forex accounts. Scores of Muslims are involved in banking and finance, and the only way to trade Forex under Sharia Law is with an Islamic Forex account.
Currency Swap Transactions for Islamic accounts
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With FX trading, a currency pair involves a swap transaction between the buyer and the seller for a specific date. If the date has not yet arrived, it is possible to modify the date if both parties agree. FX pairs hold a position, known as a currency spot, and the payment of swap rates must be made. This is an overnight interest for the currencies that are traded.
In banking and finance, FX are subject to overnight interbank (between banks) interest rates for spot positions. The rates are based on forward points, not bank rates. This is how most Forex brokerages operate. Scrutiny of these types of transactions indicates that the interest payments forbid Muslims from participating in these trades.
Most Forex brokerages which offer trading services to clients will include swap payments and no Islamic Forex accounts on site. Despite these hindrances, Islamic forex providers are gaining in popularity with the Muslim population. For starters, there are low startup costs and flexible trading hours. It is also an excellent way to generate additional income. Owing to its high trading volume, there is significant liquidity in Forex trading. Currency exchange rate fluctuations also allow for increased profitability.
What are the benefits of Islamic accounts?
The provision of demo trading accounts, technical and fundamental analysis is an additional benefit to traders. Over the years, the rapid growth of the Forex trading industry has allowed for the inclusion of specific accounts to cater to the Islamic population. The difference between Islamic accounts and other accounts is that the former are swap free. Many top brokerages around the world now provide Islamic accounts with low minimum deposits. With these accounts, there are no overnights swap rates. However, other fees may be included. It is also possible for Muslims to donate their earnings to charity. In any event, it is imperative that Islamic traders evaluate the services provided by Forex brokerages to ensure that they comply with the tenets of Sharia Law. Most companies are more than willing to assist Muslim traders with an Islamic account, and all the associated benefits
