Islamic Forex Accounts

What are Islamic Forex Trading Accounts

Islamic Forex accounts are an optional trading account type which allows traders to trade in the Forex Exchange market in be in compliance with the principles of Sharia law. According to the Islamic law or the Sharia law, interest paid on all loans of money is prohibited.  Under Sharia law, this is also called Riba, or usury.  Islamic Forex accounts don’t earn overnight interest on positions placed on the Forex market, and thus keep a trade complaint.

Forex Brokers Offering Islamic Swap-free Accounts

There is a good variety of brokers that offer an optional Islamic or Swap-free account that is a tailored for Muslim traders who want to be able to trade the Forex market and comply with the Sharia law. There are no limitations on this account type – this means you can trade Forex, commodities, CFDs contracts and every financial instrument that complies with the Islamic financial regulations.

An important note:  With some forex brokers, you will need to open a real trading account which can then be converted into a swap-free Islamic account.  Few brokers have a registration page for Islamic accounts.  If you are in doubt do not make any deposits before discussing with your account manager.  That said, here is a list of brokers that we recommend for Islamic traders.

Forex Rollovers or Swap Rates

In the Forex market, any position hold overnight generates a rollover which can either be earned or charged depending on the currency you are trading and the direction of the market. The rollover interest is another form of interest that can be credited or debited from your trading account thus is prohibited by Islamic financial regulations.  In the financial world, this rollover is also known as the swap rate.  So, Islamic Forex accounts are swap free accounts where no overnight interest is credited or debited.

Difference between Islamic Forex Accounts and Regular Forex Accounts

The Islamic Forex accounts have two underlying attributes:

  • Free swap rates.
  • No interests rate aka no Riba (Sharia law).

Other than the above, Islamic Forex accounts have the same trading terms and conditions as a regular Forex account. However, some most Forex brokers change the commercial terms of trading with them.  Some Forex brokers will widen their spreads on Islamic accounts in order to compensate for the missed revenue that would have otherwise have been generated by collecting interest. Another practice, but is far rarer, is that some Forex brokers charge an up-front commission.

Islamic Financial Regulatory Bodies

The main financial regulatory bodies in the Muslim world are the following:

  • Islamic Financial Services Board – IFSB.
  • Accounting and Auditing Organization for Islamic and Financial Institutions – AAOIFI.
  • International Islamic Financial Market – ISFM.
  • Liquidity Management Center – LMC.

Forex brokers that are registered in Muslim majority countries often have to comply with many regulations and are required to follow the Sharia law, whereas the Western Forex brokers have much more flexibility when it comes to the interest charged to their clients and the reason why only some of the brokers offer this account type.

Summary

Islamic Forex accounts are an account type that is often selected after signing up with a broker.  They are intended for use by traders of the Islamic faith which prohibits earning income generated solely by interest.  A majority of Forex brokers can accommodate followers of the Islamic faith by offering them swap free trading accounts that are compliant with Sharia law, and our selected brokers are listed above for your further reading.