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If you leave positions open overnight, your broker will automatically roll them over and charge you a “rollover fee”. The Islamic Account, on the other hand, does not have swap charges. This page will explain what Islamic account Forex trading is, how it connects to Islamic finance, and provide a list of firms who offer Islamic Account trading.
Islamic Finance
Trading is considered haram in Islam, although it is not as simple as that. The Islamic trading procedure regulation prohibits high-risk transactions such as margin and derivatives trading.
Islamic finance comprises four pillars:
-No interest rate payments or receipts (Riba)
-Instant exchanges in trading activities
-Gambling ban
-Risk and reward distribution
Islamic Bans:
Trading accounts cannot incur or get rollover swap points on positions that stay open after 5 p.m. EST on New York.
Interest on margin deposits is prohibited by Sharia law.
Loans: Transferring money to a consumer as a loan with interest terms is banned since it involves Riba. Signed obligations to repay loans are likewise forbidden.
Margin trading involves paying interest (Riba) to a broker to acquire or sell stocks, which is also against Sharia law. Trading forex, on the other hand, only requires a margin deposit, with no interest paid.
Short sales: Borrowing and then selling an asset for profit is illegal. But not with forex transactions.
Forward sales are prohibited by Sharia. This would restrict you from trading forward contracts or futures.
Traditional online Forex trading is prohibited due to the nature of Forex trading, which requires a certain level of risk to make a successful trade.
Islamic Account
An Islamic Forex account is a halal trading account offered to individuals who follow the Quran and seek to trade in the Islamic stock market. These accounts are designed to adhere to Islamic beliefs and hence differ from conventional accounts in various ways.
An Islamic account is a conventional Forex account without interest charges. This type of account is known as a swap-free account' because it pays no interest.
While there aren't as many Islamic brokers as traditional brokers, they are growing. While not all brokers offer Islamic accounts,' many do offer a basic account that is tailored to your needs and compliant with Sharia law.
Cons of Islamic Trading Accounts
No swap commissions are the key distinction between Islamic and basic accounts. This is a big advantage because you may open long positions without worrying about swap commissions lowering your profits. The trader can also open trades in currency pairs with hefty swap charges (especially in exotic pairs).
Trading swap-free seems nice, but having an Islamic account has its drawbacks. The reason is that the minimum deposit is large and the leverage is minimal. As in Islamic finance, the non-swap broker will charge a predetermined administrative fee to stay profitable after eliminating interest.
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