Forex Islamic accounts, also known as swap-free accounts, are trading accounts that comply with Islamic law, also known as Shariah law. Shariah law prohibits Muslims from earning or paying interest, known as riba, which is why traditional forex trading accounts are not in compliance with Islamic principles.
Forex trading is the buying and selling of currencies with the aim of making a profit. In traditional forex trading, traders pay or receive interest on their positions, known as swaps or rollovers. This is how brokers make money, by charging their clients interest on their positions.
However, in Islam, earning or paying interest is considered haram, or forbidden. This is why forex Islamic accounts were created, to provide Muslim traders with a way to trade forex in compliance with Shariah law.
Forex Islamic accounts work on the principle of profit and loss sharing, also known as mudarabah. In a forex Islamic account, the broker and the client agree to share profits and losses from trades, instead of charging or paying interest.
The way this works is that the broker charges a commission on trades instead of interest on overnight positions. The commission is a fixed fee that is agreed upon between the client and the broker, and it does not change based on the duration of the trade.
For example, if a trader buys EUR/USD at 1.2000 and sells it at 1.2050, making a profit of 50 pips, the broker and the trader share the profit according to the agreed-upon profit-sharing ratio.
Forex Islamic accounts also have other features that comply with Shariah law. For example, they do not allow trading in currencies that are not backed by real assets, such as cryptocurrencies. They also do not allow trading in stocks of companies that are not Shariah-compliant, such as those involved in alcohol or gambling.
To open a forex Islamic account, traders need to provide proof of their faith, such as a certificate of conversion to Islam or a letter from their local mosque. They also need to agree to the terms and conditions of the account, including the profit-sharing ratio and the commission fee.
Forex Islamic accounts are available from a variety of brokers, including some of the biggest names in the industry. They offer all the same features and tools as traditional forex accounts, including leverage, margin trading, and a wide range of currency pairs.
Overall, Forex Islamic accounts are a great way for Muslim traders to participate in the forex market without compromising their religious beliefs. They provide a way to trade in compliance with Shariah law, while still offering all the benefits of traditional forex trading.
