Muslim investors are often bombarded with information (and misinformation) about forex investing. For one, there are a lot of conflicting opinions about whether or not forex investing is permissible under Islamic law. And secondly, there are a lot of myths and half-truths circulating about forex investing that make it seem like a risky proposition.
So, what’s the truth? Is forex investing permissible under Islamic law? And is it as risky as some people make it out to be? Here are a few answers to these questions and dispel some myths about forex investing once and for all as a Muslim.
Myth #1: Forex Investing Is Gambling and Therefore Not Permissible Under Islamic Law
One of the most common myths about forex investing for Muslims is that it’s not permissible under Islamic law. This couldn’t be further from the truth! Islamic law, or Shariah, doesn’t prohibit forex trading; rather, it prohibits Riba. Riba is the payment of an unequal amount of money for an equal amount of goods exchanged. In other words, Shariah prohibits transactions in which one party benefits more than the other.
In this case, forex investing doesn’t involve Riba because the underlying asset’s performance determines the profits and losses. If the asset increases in value, you make money. On the other hand, if it goes down, you lose money. There’s no guarantee of profit, and there’s no way to determine who will win or lose in advance. This makes forex trading halal, or permissible.
One safe way to ensure you’re not breaking Shariah law is to use a swap-free account. Swap-free accounts don’t charge or earn interest on positions held overnight, so there’s no Riba involved. Better yet, you might want to work with professionals who know how to operate within the bounds of Shariah law. You can work with an Islamic forex broker service to find an account that suits your needs.
Myth #2: You Need a Lot of Money to Start Trading Forex
Another common myth about forex trading is that you need a lot of money to start. Again, this isn’t true! You can start trading with as little as $100. Of course, if you have more money to invest, you’ll have the potential to make more profits. But don’t let the myth that you need the equivalent of a blank checkbook to start trading dissuade you from trying your hand at forex investing.
The best course of action is to start small and gradually increase your investment over time. For instance, you might start with a $100 account and increase it by 10% each month. This gives you time to get comfortable with forex trading without putting your entire life savings at risk.
Myth #3: Forex Trading Is High Risk
Many believe forex trading is too risky, but this isn’t necessarily the case. Yes, risk is always involved in any type of investment. Still, if you research and develop a solid investment strategy, you can minimize your risk and maximize your chances for success.
One strategy you can follow is to set stop-loss orders. Setting these orders automatically sells your position when it reaches a certain price. Another strategy working for many is to limit orders. Limiting orders automatically buy or sell when the currency hits a certain price. You can also hedge your positions to further reduce risk. Hedging is when you take a position in one currency while simultaneously taking an opposing position in another.
There is no one great strategy that will work for everyone. The best way to find what works for you is to experiment with different strategies and see which ones help you minimize risk while still providing profit potential. Of course, you don’t have to go it alone. You can always seek the help of a professional forex trader or sign up for a managed account. With a managed account, your broker will trade on your behalf and take care of the risk for you.
But don’t forget about what Shariah has to say about risk. According to Shariah, you’re only allowed to take on as much risk as you can afford. A swap-free account might be the best option for Muslim traders. Again, swap-free accounts don’t charge or earn interest, so you know Riba is not involved. This leaves you with peace of mind that you’re not breaking Shariah law.
Forex trading can be a profitable investment for Muslims if done in a halal way. This means using a swap-free account, working with professionals who understand Shariah law, and following a risk management strategy. Forex trading is not without risk, but you can minimize your risks by using stop-loss orders and hedging strategies. Start small and increase your investment over time to get the most out of forex trading while still staying within the bounds of Shariah law.