السلام عليكم ورحمة الله وبركاته
In presenting the ruling on retail forex, a few preliminary points need to be understood. They are:
1. The Shari’ah considers gold and silver as the primary forms of currency. There was a secondary form of currency called fulūs which was generally made of copper or other base metals. It however, did not have the property of being a measure of value.
2. On account of need, the Sharī’ah permits the exchange of currencies via a contract called ṣarf or currency exchange. This type of contract has certain conditions. These are:
2.1 If the currencies that are being exchanged are homogeneous (I.e. gold for gold or silver for silver), their masses must be the same. If not (I.e. gold for silver), they do not have to be equal in quantity.
2.2 The exchange must be a current contract i.e., not a deferred contract.
2.3 The actual exchange of the commodities must take place in the contractual sitting.
3. The aforementioned conditions indicate that the ṣarf contract is not meant to be a profit motivated contract, rather one that facilitates a need.
4. The majority of scholars opine that modern fiat currencies, that have replaced gold and silver in being used as currency, take the same rulings as gold and silver.
5. Based on the previous point, the three conditions mentioned in point 2 apply to the exchange of fiat currencies. If those conditions exist, the contract will be valid.
6. If this contract is enacted virtually with all the conditions met, it will still be valid. (The physical exchange can be replaced with a constructive taking possession)
7. Against this backdrop, we outline the following concerning Retail Forex:
7.1 After understanding the preliminary points and rulings on ṣarf (currency exchange), an assessment of retail forex can be done.
7.2 Initially, this discussion will be restricted to retail trading without leverages and without interest.
7.3 The experience of depositing money with a broker, then using a virtual platform like MetaTrader to trade in forex where the balance of one’s funds seems to be changing in real-time, gives the impression that all of the conditions of ṣarf are met.
7.4 However, the reality of what takes places on the broker’s end belies that perception.
7.5 The problem with the validity of retail forex is that when trading a currency pair, no ownership of the underlying currencies is established nor is there any actual exchange of currencies by the broker.
7.6 The act of opening and closing a buy or sell trade on the forex platforms is simply a speculation on the relative prices of a currency pair.
8. Based on this, Retail Forex trading will be impermissible.
والله تعالى أعلم
And Allah knows best
Abdurragmaan Khan
Zakariyyah Harneker
