Is the system without credit and leverage permissible in Forex?

The Details of the Question

- Is it permissible for me to buy and sell foreign currency completely with my own money without using leverage and credit in the Forex system?
- In the fatwa issued by the Religious Affairs regarding the system with leverage and credit, it is stated that it is not permissible. However, the system we will use will be without credit and leverage and we will buy and sell foreign currency completely with our own money.
- They even deduct the daily interest of the daily earnings from us at night. So, there is no interest involved in our money.
- Is this kind of forex trading permissible in our religion?

The Answer

Dear Brother / Sister,

Forex is also referred to as international spot foreign exchange market transactions. The statements of those who are engaged in this system are as follows:

“In the Forex market, you have a limit of up to 200 times the amount of collateral you will invest. In other words, you are given the opportunity to trade $ 200 for $ 1 you have invested. Therefore, investors have the opportunity to make a profit at the leverage ratio used according to the physical transactions they make.”

Your risk is limited to the collateral you invest. In other investment instruments, investors cannot sell a commodity they do not have. There must be a purchase transaction beforehand for a sale transaction to occur. However, in the forex market, you can sell a parity directly without buying it if you think it will fall. Therefore, you can make gains even in falling market conditions.”

When this form of forex is taken into consideration, the organizations and individuals who carry out this transaction (i.e., buying and selling foreign currency) on behalf of their clients - even if there is no explicit contract of agency - do so as the client’s agent. In the meantime, they lend them up to two hundred times the amount of money that the customer has given/invested in them, and they buy and sell foreign currency with this money.

- Why do they lend this amount of money? To do the customer a favor (qard al-hasan) or to make a guaranteed profit for themselves and to enlarge it?

Absolutely the latter because the customer has deposited collateral; and if there is a loss, the loss will be covered from this collateral. If there is a profit, it will be transferred to the customer’s account, but the trader will also earn a commission. In other words, there is an act of “lending for profit” here, which is not regarded as permissible in fiqh.

When the transaction made on behalf of the client incurs a loss, the agent should bear the entire loss, but the fact that it is “limited only to his collateral” does not comply with the criteria of fiqh.

The sale of money that is not in hand and that has not been purchased is also not permissible in fiqh because there is no actual delivery or the condition of delivery.

 The answer to the question, “Does this transaction benefit the society and the economy of the country?” is “No!”

Normal foreign currency buying and selling in accordance with the rules of consumption in fiqh is legitimate. People can definitely buy and sell foreign currencies when they need. The most important condition for this is that the purchase and sale must be in cash.

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