Despite the global economic downturn, countless people across the world have still managed to sustain their financial health, and some have even increased their wealth. Increasingly, people such as these have sought wealth by trading currencies on the foreign exchange market. However, as this is done in various countries around the world, there must be options embedded in the Forex system to accommodate investors of different cultures and religions. For millions of Muslims worldwide, interest can not be paid or collected, so the Forex market allows for special Islamic trading accounts to address this particular religious custom.
An Islamic Forex account is one specifically designed for Muslims, wherein interest is neither charged nor earned, in accordance with Islamic law. In most Forex trading, a company will charge interest for the currency that a trader has sold, but will pay interest for the currency that was purchased. Very often, a differential in interest arises between the two currencies being traded, as Forex traders often leave their positions open for extended periods of time. Such practices are not done by Muslim Forex traders, even if they are very common among other traders.
When a position is left open, a trading firm is able to roll this position over into the next value day, which will then allow them to buy and sell the position at that specific day's value. In other words, a trader enacts a transaction of Euros to US dollars on Monday for a Wednesday value; the Forex firm which is acting on this trader's behalf will then roll this position over to the next value day, which is Thursday. The rollover would have no cost or gain if the bidding and asking rates were the same, and also if there was no differential in interest that happens with the Euro dollar. On the other hand, when the interest rates of the effectiveness are higher than the interest rates of the dollar, the trader will receive a small profit by holding a position of short dollars and long Euros overnight.
With an Islamic account, also called swap free accounts, the Forex firm will allow a Muslim trader to hold his position without being charged or receiving benefit, while also booking the gain or loss of the daily swap. Though the charging and receiving of interest is not allowed within Islam, the Islamic Forex account also provides a certain comfort of not being burdened by complex issues about interest. More and more Forex traders of other religions and cultures are seeking this type of swap-free trading.
It is important to remember that even though there is no interest charge, there will be a fee for the trading process. Still, Islamic Forex accounts are certainly a good option for traders, and the only option for devout, practicing Muslims.
An Islamic Forex account is one specifically designed for Muslims, wherein interest is neither charged nor earned, in accordance with Islamic law. In most Forex trading, a company will charge interest for the currency that a trader has sold, but will pay interest for the currency that was purchased. Very often, a differential in interest arises between the two currencies being traded, as Forex traders often leave their positions open for extended periods of time. Such practices are not done by Muslim Forex traders, even if they are very common among other traders.
When a position is left open, a trading firm is able to roll this position over into the next value day, which will then allow them to buy and sell the position at that specific day's value. In other words, a trader enacts a transaction of Euros to US dollars on Monday for a Wednesday value; the Forex firm which is acting on this trader's behalf will then roll this position over to the next value day, which is Thursday. The rollover would have no cost or gain if the bidding and asking rates were the same, and also if there was no differential in interest that happens with the Euro dollar. On the other hand, when the interest rates of the effectiveness are higher than the interest rates of the dollar, the trader will receive a small profit by holding a position of short dollars and long Euros overnight.
With an Islamic account, also called swap free accounts, the Forex firm will allow a Muslim trader to hold his position without being charged or receiving benefit, while also booking the gain or loss of the daily swap. Though the charging and receiving of interest is not allowed within Islam, the Islamic Forex account also provides a certain comfort of not being burdened by complex issues about interest. More and more Forex traders of other religions and cultures are seeking this type of swap-free trading.
It is important to remember that even though there is no interest charge, there will be a fee for the trading process. Still, Islamic Forex accounts are certainly a good option for traders, and the only option for devout, practicing Muslims.
Islamic Forex
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