Forex trading deals with buying or selling currency pairs to benefit from their daily market swings. For the regular retail trader, this activity is associated with scalping.
But investors buy or sell a currency too. Macro-investors look at the economic discrepancies between two economies or even regions in the world. They buy or sell a currency and have a longer time horizon for their target.
In both cases, the outcome is a profit and a loss.
Ask any trader in the world and he/she will tell you that trading is not gambling. What is the difference, then, between trading and gambling?
The earlier explanation gives the answer. Retail traders mostly scalp their way through profits, while investors do trade.
From this point of view, retail traders gamble, while investors trade. It all comes from the time horizon of their trades.
Is it that simple though? Can we draw a line in the sand between trading and gambling? If so, how about the Muslim traders? Is trading Forex halal or haram?
Forex Trading – Halal or Haram
Before discussing this topic, we should explain the two words. In fact, we already did.
In Islam, haram stands for gambling. As such, it is strictly forbidden in the Muslim world. Religiously, haram is perceived indecent, or sinful.
On the other hand, if trading is NOT perceived as gambling, it is halal. This is allowed.
Conditions for Forex Being Halal
If you do not gamble, Forex is halal. For that, at least to following should be considered:
- Avoid swaps. A swap is an interest rate differential between the two currencies that make a currency pair. When this differential is positive and the position is kept to the next day, a small amount gets deposited in your trading account. This is forbidden. To avoid swaps, either trade intraday (close all your trades until the end of the trading day) or use a swap free account. Most Forex brokers offer now swap free accounts for Muslim traders.
- Use an ethical mindset. This is very difficult to express in words. You’ll have to have a different reason to trade, other than simply buy or sell. Moreover, you must analyze the market and not simply ride a trend for profits.
- Treat trading as a job, and not as a game. This is simply because most professional traders do that. If you do not treat trading as a job, and treat it as a hobby, you’re doomed to fail anyways.
- Trade for making a living and not for making a profit. To do that, first you need to learn money management techniques and why it is more important to focus on the potential losses first and then on the expected outcome.
- Know the product you trade. When you do that, you leave little room for error as for the reason why you take a trade.
- Define a proper trading plan. Use risk-reward ratios that have clear entries, exits and stop losses. Base your money management system on a set of rules to follow no matter what.
Above there are only a few of the things that make trading halal. However, one can easily switch the tone and the bias and make it haram.
After all, the line between trading and gambling is extremely thin. Moreover, other things related to trading come to discussion.
For example, the broker offers access to leveraged accounts. Which, essentially, means that the trader accepts a loan. Yet another subject to debate on a long list of pros and cons about Forex trading for Muslim traders.
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