There has been much discussion recently on whether forex trading is Halal or Haram according to Islamic religious practices and beliefs. We frequently observe that Islamic experts unquestionably concur that financial trade is Hala, or permitted, under Islamic law, when specific criteria are met. However, there has been significant disagreement and discrepancy in the views of the Islamic leaders about the prerequisites for halal trade. In this article, we will shed some light on this discussion.
What is Copy Trading
In the financial markets, copy trading allows users to automatically duplicate positions started by expert traders into their accounts. One of the various ways to trade in the foreign exchange/forex market is through copy trading. Simply put, copy trading in forex refers to the practice of following the positions, actions, and techniques of another trader (depending upon the conditions provided by the broker).
Instead of manually monitoring and analysing the forex market, one may trade via a copy trading platform. All traders on a copy trading network are informed when an expert trader creates a position, and they may then choose whether or not to take the same position.
What is Haram Trading in Islam?
The following financial transactions, albeit normal in day-to-day commerce, are strictly prohibited in Islam:
1. Riba – Trading becomes haram when interest (RIBA) is demanded of the customer under several circumstances.
2. Pledging on Loans – when a borrower agrees to repay a loan within a certain period of time with the option for the lender to sell the contract in order to recoup the debt if the borrower is unable to pay back the principal or interest. This renders trading unlawful.
3. Interest- bearing loans are prohibited; money borrowed with interest is considered Haram.
4. Short-Selling Strategy – The borrowing and sale of an asset that is not intended in order to make a profit from is likewise prohibited in Islam.
Is Copy Trading Halal or Haram?
Copy trading (especially in forex) is neither inherently halal or haram. It can be Halal as long as certain trading conditions are abided by the Islamic trader as well as the broker.
The first step to Halal copy trading is by opening an Islamic forex trading account. A forex trading account that has been chosen by its owners to follow the moral and ethical precepts of Islamic law is known as an Islamic account. These sorts of accounts include a number of conditions that are designed to guarantee that trading will be done responsibly and fairly. The main distinction between an Islamic trading account and a standard one is that an Islamic account does not incur any additional fees or interest, which is in line with Sharia law’s financial tenets.
Secondly, by its fundamental principles, copy trading is permissible. During copy trading, there are no conflicting interests between signal producers and traders. However, in order to avoid the overnight fee or swap costs, traders must utilise swap-free accounts (Islamic accounts).
Islam permits and approves all forms of trade, including copy trading and forex, as long as Sharia law is adhered to. You may consult and make reference to an Islamic religious leader if he is unsure. The trader must, however, always utilise authorised brokers. Depending on the nation that the trader resides in, different trading laws must be adhered to by brokers.