Sharia ruling on trading Forex currencies while avoiding Sharia caveats

Trading is indeed one of the distinct ways to make money quickly, and one of these ways is foreign exchange trading or forex trading. However, many also question the validity of forex trading according to Islam and the laws of halal and haram, so what is the Sharia ruling on forex currency trading. Contents of the topic Toggle Sharia ruling on currency trading Forex Foreign exchange trading Types of transactions in the Forex market Money through Forex Forex trading according to Islam Swaps by Islamic banks Is Forex trading halal according to MUI? Sharia Ruling on Forex Currency Trading Speculation about Islamic Sharia often ends up with Sharia Ruling on Currency Trading or Currency Trading in the grey.

Differences in views regarding its status in the eyes of Sharia often make potential investors hesitant to try this foreign exchange market. In fact, the use of foreign currencies in our daily life, which increasingly knows no boundaries, is becoming increasingly massive. The Forex market is no longer just an arena for speculation, but also a market where we exchange money that we will actually use.

The ambiguity surrounding Islamic law that casts a shadow over Forex trading activities must be sorted out so that you do not have doubts about what is halal or haram in Forex trading. However, before delving into the legality of Sharia, let us first learn about this market. Forex Trading Forex trading is the activity of exchanging two currencies at the exchange rate and delivery date specified when the transaction is made.

This market is the largest and most liquid market in the world with daily transaction values reaching trillions of US dollars. When trading, two currency items will be paired to form a currency pair consisting of the reference currency and the counter currency. For example, if you want to buy US dollars and exchange them for rupees, the currency pair is USD/IDR.

This market is held over the counter (OTC) which means that the price setting is not done as centrally as in a centralized market. Therefore, the Forex market is a decentralized market that acts as a center for transferring purchasing power, providing credit, and reducing foreign exchange risks. Types of Transactions in the Forex Market The Forex market itself has three types of transactions as follows: Spot Transactions This transaction takes place by offering and paying the foreign exchange value between banks which is completed within two business days.

The money transfer can be carried out based on the agreed value. There are three options to choose from, namely today's value (today's value), tomorrow's value (tomorrow's value) and the value upon delivery, i.e. two days after the agreement (spot value). Forward Transactions Forward transactions are futures transactions In principle, both parties conduct transactions between currencies with future delivery (forward). The exchange rate applied to the transaction is determined at the time of the contract, but is only paid and delivered at the maturity of the contract.

This transaction is undertaken to hedge or hedge against changes in exchange rates. Some traders also use this method for speculation. Swap Transactions Swaps are generally made by purchasing a currency on a spot basis and simultaneously reselling it to another bank with a forward contract.

Swaps are also conducted by banks with Bank Indonesia as an intermediation method in the central bank's monetary policy. Mainly to keep the rupee exchange rate stable. Bank Indonesia can initiate a liquidity swap of a maximum of 20% of the bank's capital with the aim of injecting new funds. The funds usually come from foreign loans.

On the other hand, banks can initiate investment swaps with their clients who have funds abroad. This type of swap is carried out if the client intends to invest in Indonesia with funds located abroad. Money through Forex Thanks to the huge liquidity and large transactions, the Forex market or the Forex market is a profitable arena for money hunters like the market. Here we explain the Sharia ruling on currency trading. In principle, you earn money by trading currencies.

Forex trading is done by exchanging currencies, for example rupee to dollar, or dollar to euro later, the exchange will result in a price difference that becomes a cash portion, or even a loss, for you as a trader. However, this market is often misinterpreted as a speculative market due to its high volatility. Many people think that volatility is a gambling arena.

Well, this assumption makes the halal nature of forex trading questionable by Muslims. Islam considers speculation or gharar to be forbidden as mentioned in the Qur’an Surah Al-Ma’idah 90. But in reality, you still need analytical tools and qualified knowledge related to global conditions and the fundamentals of a country to make money in the Forex market. Without all of that, your investment money will float.

Therefore, there are also those who believe that forex trading is legal in Islam because it is not speculation. Forex trading according to Islam Forex and the Sharia ruling on currency trading according to Islam can be considered halal if it does not contain three forbidden elements: usury or interest, gharar or uncertainty, and qamar which is guesswork. In fact, Islamic scholars and financial experts still have different views regarding futures and swap transactions.

However, a common thread can be drawn that such a transaction can be halal if it meets the elements of benefit. The International Consensus on Shariah Principles has an additional overview of hedging and swapping practices that have become a basic need in this era. According to reports from the official Islamic finance website, many Islamic banks that own the Forex market apply Sharia principles to conduct their foreign exchange transactions.

This principle is implemented by avoiding the three most avoidable elements in financial transactions as mentioned above. All three have an element of subjectivity depending on the context of the transaction. Therefore, according to Islam, Forex can be considered halal depending on the context in which the transaction is carried out. Hedging undertaken by banks on futures contracts is no longer seen as speculation, but rather a mechanism to limit gharar on the volatility of the global forex market.

By fulfilling Sharia requirements such as mere non-speculation, hedging practices are no longer classified as Sharia banking practices. Swaps by Islamic banks In addition, the practice of swaps has been implemented by Islamic banks on the basis of Sharia contracts in the Sharia ruling in currency trading such as wa’ad (binding), Murabaha (buy and sell agreements), Musawama (buying and selling at an agreed price after bargaining) and Tawarruq (buying on credit and then selling). Again, cash payment method.

Clear contracts in the practice of buying and selling ensure that both parties are not harmed by the transactions that occur. Therefore, this deal is compatible with Sharia principles.

Is Forex trading halal according to MUI?

If international consensus on Sharia principles can “justify” forex trading, what about the Indonesian Ulema Council (MUI)? So far, the MUI has given the Shariah ruling on currency trading only the halal label to one of the three types of foreign exchange transactions commonly carried out, namely spot transactions. Read also: Teaching Forex to beginners, a simplified explanation of the real beginning of trading. This transaction is considered cash, although settlement takes two days due to the complexity of the international transaction mechanism.

However, the spot transactions referred to by MUI still involve two other types of transactions, namely forwards and swaps relating to the mechanism by which banks regulate foreign exchange representing their foreign exchange reserves. MUI needs further review so that this fatwa is not ambiguous given the breadth of the financial world and the rapid development of the times.