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Islamic Legality of FOREX business?

On a regular basis, I receive inquiries from visitors of my website asking for the legality of forex business from Islamic point of view, sometimes the hammer is straight – is it halal or haram? It looks these callers had done some Internet research on the subject and still searching for an answer or need to explore other point of views. Even though it is not my jurisdiction to fix on the matter however since I have an explanation that is conceptual instead of focused legal tweaking and is different from other learned Islamic experts’ plus many private callers (in email) seem satisfied with my approach, so it might be helpful for a larger audience to post it here.

A brief summary of these kinds of Q & A as observed is:

What callers seek primarily:
Do forex or money-exchange businesses involve Riba?

How learned experts classify it mostly:
Foreign currency if traded on-spot with full settlement of account – is permissible; if traded with margin or delivery is deferred then impermissible.

All money transactions in Islamic jurisprudence (Fiqh) are covered under the contract of Sarf which is based on a single famous hadith of six commodities articulating two major conditions of “hand to hand” and “equal for equal” exchange. The learned Shariah Board Scholars of IFIs seem highly concerned with “hand to hand” condition and they simply translate it as “spot and full settlement” but they don’t discuss “equal for equal” condition as what it stands for? Have they reached some undisclosed consensus for “not to discuss or explain this condition”? I have no idea. Ironically for today’s IFIs operations, one of the two foreign currencies in transaction is treated as “commodity” by these experts which is simply abusing of Fiqh, why? Just to replicate the practice of treasury’s dealing of conventional banking to their Islamic counterparts.

The neglected “equal for equal” condition of well-known hadith says - there exists no possibility of pricing the exchangeable commodities, it further translates that the conversion exchange-rate between a pair of currencies shall only be one i.e., only official exchange-rate is valid and the lower buy and upper sell rates are invalid. The exchange of foreign currencies shall be carried out this way as hadith demands; it is evident now where currency trading will plunk?

Let me offer few more thoughts to consider in this case:

  1. Currency is not considered as a commodity which is agreed vision of almost all school of thoughts in Islamic economic ideology. Let us however consider it as a commodity even then all paper currencies are ONE commodity principally - PKR, SAR, AED, USD, Euro, PSTG, etc. etc., all are same because they all are fiat currencies only backed by "trust", even if backed by "gold" or any other commodity, the genus is same, only quality may be different.
  2. While treating currency/money as commodity, it is sure that some one in the system is free to set the price of this commodity and if one can price money/currency then what else is riba. If I can price my dollar today for more than a dollar tomorrow, then why it is interest/riba? There are two types of transactions where riba can be involved, one is a loan and the other is exchange (swap). Riba in loan transactions is reasonably understood, but riba in exchange is not yet recognized clearly, we are basically mislead by the term "trading" in currency business, when we don't accept it a commodity (or different commodities) then there is no possibility of trading, it can only be exchanged and exchange must be equal and hand to hand. The bid and offer rates are the front end mechanics required for currency business but does not conform to the above rule stipulated in noble hadith.
  3. One of the main function of the currency/money has remained the unit of account through out history for pricing products, commodities, services etc., we all know the use of gold and silver as currency/money and as a reference for defining prices. Do you not think that we are in an era where the pricing reference is changed on minute by minute basis? We have replaced a real intrinsic value currency with a fiat currency, and the worst thing is that because of changing its value minute by minute, we are changing the reference of pricing accordingly, how much distortion is created in the economy with this artificial behaviour defined for currency/money. In my views, this is very unrealistic and one major cause of economic problems in today’s time since we do not have a universal stable reference for pricing, and if we can solve this issue fairly, we can overcome many economic problems and miseries.
  4. Unfortunately, we all are not observing the devastating results of currency business, you may visit the BIS (Bank for International Settlement) of Basel website to get the statistics on daily forex trade volume, link here, shocking more than 3 trillion dollars daily exceeding several times the physical trade size of the world, calculate the minimum yield of forex trade in PIPs and do your research, how much value in terms of any currency is eroded daily? Who's money is that? Who's bearing the loss of value? You can’t ignore the vital condition of hadith.

For business purposes, such easy and powerful money earning mechanics is appealing and practiced all around including Islamic Banks, but I can assure you that if we keep on justifying such activities, we are about to see "Islamic Capitalism".

In my understanding, Islamically foreign currencies can only be exchanged on official declared rates and can’t be traded on different buy/sell rates.

I have tried to explore this particular noble tradition from a different perspective in my paper titled as “Riba and Hadith of Six Commodities”, you can download it from at

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It is not a matter of spread alone but its legitimacy....

It is not a matter of spread alone but its legitimacy in view of some ethical values set somewhere. The argument to meet the expense or have some earnings from an illegitimate business is fundamentally invalid. The evils of artificial forex business are evident causing peoples’ discontents the world over by way of uncertainty and loss of value to their money stocks, in a systematic way. Brokers are always happy in such setups because they only earn in commissions regardless of loss or gain to their clients, it is good for them but money loses value which is a concern of all the people even if they are not doing the forex transactions.

with regard to spreads in forex trading

Salam, you said brokers gain commission whether the trader profit or loose in the trade. Remember every business whether online or offline is all about taking risk, which is profit or loss. I have a question. The question is " If you rent a shop for business and at the end of the day you calculated a loss, would pay the rent for that day or not islamically? Brokers provide the platform that bring the seller and buyer on the platform just like the rented shops, please compare the two cases. Thank you.

what is alternate to paper currency

please any one can explane that what will be alternate of fait (none comedity base)currency if it is prohabetid in islam then what will be solution ,
if point base currency stopped then how people will buy and sell

No alternate of Fiat is sought actually

I think there is no need for an alternate form of currency since every form would have its own shortcomings even gold dinar and silver dirhams are not perfect monies, the problem is with the system of money and the rules of money transactions, the system and transaction is the subject not the form or substance of money.

forex transactions

The world today is a very different place. If you do not trade currencies you are loosing value because in a free market the value is determined by the market. The world is setup in such a way in that you fall behind if you do now keep up. It is unfortunate, but that is the way it has been set up. Otherwise the money you work for looses purchasing power. That is why the forex market exists and has exploded in popularity over the last few years.

forex not for brokers

I met a forex broker in financial center of a country and just out of my curiosity, asked him "how much have you put in this so-called forex trade so far?" He said "not a penny! it is not for me, I am not greedy, I just provide my services to people who are interested." His fair answer tells what it is. No comments.


That is what i too had listened from shaikh Imran hosien... and got a good explanation from u alhamdulillah....

Views exchanged on a forum

In an exchange of views on IBFnet regarding the subject, one brother said:

We may agree that all currencies are same genus as we don’t have any clear dalil to prove it is different kinds but here the question which I raised still remains; i.e., equal to equal means : same quantity. In that case how we can say a special kind of currency will have higher rate: here we are equalizing the currency to dates.........

My response was:

I really appreciate your straight forward recognition of same genus for all currencies; will try to answer the other part in following points.

  1. Equalizing currencies to dates means ~ same genus different qualities.
  2. Different qualities means ~ different exchange values in terms of any specific medium of exchange.
  3. In Muslim’s hadith # 3853:
    • It says “dates for dates” which means same genus.
    • It says “like for like” which means same quality i.e., same “exchange value”.
    • It says “equal for equal” which means quantitative equivalence that you are doing, 1 kilo equals 1 kilo of other since quality is same.
    • It says “hand to hand” which means simultaneous exchange.
  4. Let us not fetch or assume further meanings that are not said in the hadith, it does not deal with a situation where qualities are different in same genus.
  5. If qualities are not “like for like” then we can not translate “equal for equal” condition in just quantitative terms, it is neither said in the hadith, nor it is natural or sensible, we can not deduce a demand of such quantitative equivalence from this hadith for two different qualities in same genus.

This NOTlike for like” situation is dealt in hadith #506 (Bukhari, book 3, vol 38) and hadith #3871 (Muslim, book 10) where Bilal (RA) was guided to sell first kind and buy the other from its proceeds.

In this hadith, the message is emphasizing a purpose thru a procedure, and the purpose seems to equalize the exchange-values and that is possible in “mark to market” procedure as guided. This is because there is no exchange rate defined between the two qualities of dates and will be defined when the exchange will be routed thru market.

Like different qualities of dates having different exchange-values, a currency of one country can be different in value from the other and there are so many factors to cause this difference. If there is a mechanism to define the exchange rates between currencies, the procedure is done and purpose would be achieved if currencies are exchanged at those defined rates.

Emphasize is not on procedure but for purpose, if gold is standard then your suggestion is quite logical; all fiat currencies shall be marked to gold, but what to do if gold is not the standard, only we have fiat currencies, if exchange-rate mechanism is equally implemented on one economy, there shall be no harm because it is same for every one. The harm is in Riba which is in forex when currencies are exchanged at different sell/buy rates.


Salam Mr Irfan,

Your point is because fiat money are just IOUs they are not to be treated as gold or silver; to recap,
when one exchanges gold with silver , price difference is allowed but delivery must be spot basis ( hand to hand, no deferment ) But for equal with equal, say gold with gold, no differences in price nor deferment are allowed.

Thus your reasoning is since, there is no difference in real value from one fiat money to another notwithstanding they are denominated in different currencies,the rule of exchanging equal with equal applies.That is no difference allowed and no deferment allowed.

But how do you do it ? A US 100 would not be exchanged with SRiyal 100.The PERCEPTION and URF (practice ) is they are of different values and of different class.Unlike gold with gold ,where there is no urf that 1 gm of gold of same quality from Russia differs in value from that in US of same quality and same weight.

So back to the case of exchanging or buying US100 against SRiyal 100, what decides is the market exchange rate that determines the countervalue of one currency with another.Countervalue is based on market supply and demand.Like it or not it is a commodity of different values even if it is paper money.Price is determined by selling and buying as well as lending and borrowing activities.

What could be the Islamic finance solution to this?
Global fiat money is here to stay.Regard it as Um balwa as human slavery was before.Muslim's involvement should be limited to trading i.e buying and selling and refrain from lending and borrowing.

My humble opinion.

Fiat money exchanged

Wa Alaikoum Al Salam!

Thanks for your comment.

No I am not saying that there is no difference in the value of different fiat currencies, they are essentially valued differently having several economic factors causing this disparity. One USD is not equal to One SR; the two must have some defined exchange-rate. There is no problem or objection to exchange the two currencies at this rate even for million times consecutively. The problem is different sell/buy rates. Why different? When a conversion rate is fixed by the country authority then from where the market fetches the right to change that rate – these are capitalist market forces, monopolistic and exploitative. The demand and supply is artificial and the raison d'être for its demand and supply rests in different rates, remove this reason - the demand and supply will come to ground level zero.

Islamic finance solution is not to indulge in forex even on spot and avoid Riba, invest in real economy to produce for people, why they should involve in this easy money making mechanism which by any standards or reasons is not good for the economy.

Global fiat is here to stay, agreed, neither I am gold dinar advocate, I am against Riba which is manifested in forex and currency trading at different sell/buy rates.

Muslims involvement shall be limited to convertibility of fiat money at single defined rates by the authority, no sell/buy rates.

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