Forex trading is an old trade that has been practiced in many nations around the world. The trade is generally regulated by the financial institutions that have the mandate in the particular territories concerned. In the countries where Islam is the predominant state religion, the jurisdiction often shifts to Islamic institutions.
Many forms of businesses are thus under trading Islam laws and regulations in such countries. For the general specifications, however, there are certain laid down procedures that are common to all forms of financial trading in Islam. These are the same procedures that apply to forex trading. The following are the general provisions that are specified to regulate this trade.
The Trade Should Not Have Interest Rates
The most known provision of Islam in financial trades is that interest rates are prohibited by law. The history of forex trading under Islamic law has evolved over the years where new laws have been created to ensure that trading is possible without interest rates. In the modern day, people can be able to opt for an Islamic forex trading account that only makes money through direct trade and commissions.
Going by this standard, there are certain forms of forex that are thus disallowed. In general, the trade needs to be carried out in equal and fair amounts such that no party in the trade is afflicted in any way. In cases where different currency values apply, the trade should only occur in the allowed exchange rate without any additional charges.
Trading Should Accompany Contracts
This provision simply states that the business should be carried out where the contracts have been agreed. In this case, if a commercial agreement is agreed upon in a single sitting, then the trade should also be done there. In the case of online and electronic trading, there is no chance of meeting in a physical place. This law, therefore, considers the platform where contracts are signed to be the same place where trading should occur. Forex trading generally happens within the same realm and thus, there are no provisions broken when parties trade this way according to Islamic provisions.
Trading Should Be Done Directly With Parties Without Delays
The specific provision given in the Islamic teachings is that trading should be done directly from one hand to the other instantaneously. This provision does not specifically have a literal meaning in the modern day since computers are capable of facilitating virtual trade. The interpretation of the provision can, however, be that currency trading should not be allowed to prolong to the extent where interest rates are necessary. Interest rates are the key reason why time should not be wasted during the trade.
In conclusion, any kind of currency exchange under Islamic laws must abide by the laid down procedures of general trade. The specific interpretation of the laws is however based on the jurisdictions that prevail in a particular country. There is definitely a provision for currency exchange just as there are provisions for general trade. The only contention comes in the specifics and nature of the trade.
