To make a ruling on Forex trading, it requires detailed understanding of the efficient cause (illah) of the prohibition of Riba; thamaniyyah, killiyyah, wazan, jinns (genus) and other related objectives.
Summarily, there is a general consensus among Islamic jurists on the view that currencies of different countries can be exchanged on a spot basis at a rate different from unity, since currencies of different countries are distinct entities with different values or intrinsic worth, and purchasing power.
There also seems to be a general agreement among a majority of scholars on the view that currency exchange on a forward basis is not permissible; that is, when the rights and obligations of both parties relate to a future date.
However, there is considerable difference of opinion among jurists when the rights of
either one of the parties, which is same as obligation of the counterparty, is deferred to a future date.
To elaborate, let us consider the example of two individuals A and B who belong to two different countries, Nigeria and US respectively.
A intends to sell Nigeria Naira and buy U.S dollars. The converse is true for B. The naira-dollar exchange rate agreed upon is 1:20 and the transaction involves buying and selling of $50.
The first situation is that A makes a spot payment of ₦5000 to B and accepts payment of $50 from B. The transaction is settled on a spot basis from both ends. Such transactions are valid and Islamically permissible. There are no two opinions about the same.
The second possibility is that settlement of the transaction from both ends is deferred to a future date, say after six months from now. This implies that both A and B would make and accept payment of ₦5000 or $50, as the case may be, after six months. The predominant view is that such a contract is not Islamically permissible.
The third scenario is that the transaction is partly settled from one end only. For example, A makes a payment of ₦5000 now to B in lieu of a promise by B to pay $50 to him after six months. Alternatively, A accepts $50 now from B and promises to pay ₦5000 to him after six months. There are diametrically opposite views on the permissibility of such contracts which amount to Bay’u Salam in currencies.
(Bay’u Salam is an Islamic contract in which full payment is made in advance for specific goods to be delivered at a future date. It is mandatory that the quality of the commodity intended to be purchased is fully specified; leaving no ambiguity leading to dispute).
So, forex will be permissible when you treat trading as a business where you calculate your risk of investment with proper reward expectations. And not the treatment of trading as gambling whereby you trade with Swap accounts. And you must be certain no Riba element is apparent.
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