Foreign exchange trading has been one of the fastest-growing activities among private investors in the past 15 years. According to research by Citi in 2014, 4 million people are now trading currencies online, and retail traders account for around 20 per cent of the average daily turnover of the global spot forex market. An estimated $5.3tn changes hands every day in the foreign exchange markets. On a daily basis, the financial institutions of the City of London make speculative currency trades worth nearly as much as the entire nation’s GDP for a whole year. According to the Global Policy Forum, in 2011 only 0.6% of foreign exchange could be traced to genuine international trade in goods and services. Of the rest, a minimum of 80% was directly attributable to exchange rate speculation. However, three quarters of people who trade with online currency firms lose money. With such easy access to the financial markets and minimal margin requirements, it is becoming common for Muslims to consider Forex trading as an investment. Thus, this paper considers the Shariah compliance of trading in retail forex by individual Muslim investors. To appreciate the discussion on currency trading, the paper initially discusses the concept of money in Islamic economics before discussing the juristic interpretations related to fiat currencies. Thereafter, the different methods and products to trade Forex are investigated and an opinion from a Shariah perspective is offered for each type of trade.

This research paper is authored by Mufti Faraz as a Shariah advisor for Shariyah Review Bureau in Bahrain. Click on the following link to get access to this paper: