3 Things You Need To Know About Forex Trading in Islam - Musaffa Academy (2024)

FAQs

What does Islam say about forex trading? ›

In Islamic finance, spot forex trading, involving the immediate exchange of currencies, is generally considered permissible as long as it adheres to the principles of avoiding interest (riba) and ensures immediate settlement.

Analytical skills

Many forex traders decide to use short-term strategies such as day trading and scalping, so the ability to apply indicators and tools to charts to study price action is a very valuable skill to have. It's also useful to have fundamental analysis skills.

There are 3 Pillars to every and all profitable strategies and they are: Frequency, Win-Rate, and Risk to Reward Ratio. We can define Frequency as the amount of instances a trade setup presents itself during a given period of time.

A Muslim can trade in those goods and commodities only the use of which has been declared to be Halal (lawful). There can be no trade and traffic in things the use of which is proliibited by Islam. For example, there can be no trade in wine, swine, dead bodies of animals and idols.

According to Muslim scholars, forex trading can be deemed halal or permissible, provided it adheres to certain principles outlined in Shariah Law. Key considerations include the avoidance of Riba (usury or interest), Gharar (excessive uncertainty), and engaging in transactions that promote fairness and transparency.

This forex trading style is ideal for people who dislike looking at their charts frequently and who can only trade in their free time. The very lowest you can open an account with is $500 if you wish to initiate a trade with a risk of 50 pips since you can risk $5 per trade, which is 1% of $500.

The golden rule of Stop Losses is that they should never be moved away from the market once the trade is opened. If a trader feels that their stop loss is incorrectly placed, they are recognising that the foundations of their trade are incorrect and therefore they should close out.

What is the rule of 3 in forex trading? ›

The Rule of Three allows us to view the market with a new set of eyes. Spotting pull backs, trend reversals, invalid vs valid price break outs. As we won't receive privileged information, we can at least have a greater percentage to align our positions with larger institutions and trading firms.

It consists of three successive candlesticks – the first is long and bearish and is followed by a smaller bullish bar that is completely engulfed by the first one. The third candle is bullish and closes above the second candle's high, suggesting a potential shift from a downtrend to an uptrend.

In essence, forex trading is considered halal within certain guidelines, including: No Interest-Based Transactions: Forex trading must avoid any involvement in interest-based transactions. This includes refraining from charging or paying interest on positions held overnight.

If the Forex market is based in a manner that uses leverage or margin, then it isn't always halal. This is due to the fact combining increase charge with brokerage creates a state of affairs in which riba, or usury, can arise.

Forex trading in gold can be considered halal if it meets Islamic finance principles, specifically avoiding speculative transactions that resemble gambling, ensuring immediate delivery of the traded item (in this case, gold), and not involving any form of interest.

Gold trading is permissible (halal) in Islam. But, before trading the gold, every Muslim should know that gold is one of the Ribawi items. It means Muslims cannot trade it for future profit or speculation. However, Muslims are allowed to use gold as a form of cash and own it as jewellery.