Best Islamic Forex Brokers Offering Swap-Free Accounts

Best Islamic Forex Brokers Offering Swap-Free Accounts

In the context of Sharia Law (God’s will for humankind, according to the Quran) – there has been some debate over the years about whether or not trading forex is haram or halal.

Of course, most people know that gambling (Al-Maisir), alcohol (Khamr) and pork (swine) are all haram (therefore forbidden) according to the Quran – but did you know that trading forex doesn’t have to be?

These days many scholars are differing in opinion slightly, having to take into account modern life and what that means for people of the Islamic faith. This involves still fully respecting Islamic Law, but perhaps interpreting parts of it slightly differently.

If you are a follower of the Islamic faith and would still like to trade forex, you will be pleased to know that it is possible to open a halal trading account.

In this guide, we are going to explain what Islamic forex brokers are, key metrics to look out for when choosing a platform that meets your needs, and which providers we think you should consider in 2020.

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    eToro - Buy and Invest in Assets Commissions-Free

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    • Buy over 800 stocks, cryptocurrencies, and ETFs without paying any commissions
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    • Perfect for newbie traders

    What Is An Islamic Forex Broker Account?

    In a nutshell, an Islamic forex broker account exists to allow followers of the Islamic faith to be able to trade currencies – whilst remaining true to their religious beliefs.

    How do broker platforms make this possible? According to Sharia Law, the accumulation of financial interest is strictly forbidden, so Islamic accounts neither receive nor pay any interest at all.

    Sometimes called a ‘halal forex account’ or a ‘swap-free account’ – these accounts have been around for a while. More and more brokerage firms are offering this type of account. Some of those which don’t will still adapt an account to suit an individual’s religious needs. Let’s explain a little more about the fundamentals of Islamic forex trading.

    The Fundamentals Of Forex Trading Halal

    The very foundation of Islamic forex accounts is actually very comparable to standard forex accounts. This is, of course, excluding the fact that Islamic forex brokers have to meet the fundamentals of Islamic finance laws.

    The key fundamentals of Islamic finance are:

    • Speculating/Gambling – ‘maisir’
    • Charging or paying interest – ‘riba’
    • Risk and uncertainty – ‘gharar’
    • Hand in hand – ‘halal trading’

    As we’ve mentioned, the whole point of Islamic brokers is to provide forex accounts for people who want to remain faithful to their religion. The way that Western countries trade simply doesn’t consider these four principles.

    Although the bare bones of forex trading doesn’t actually go against Sharia Law, there are other factors such as overnight financing fees etc to consider.

    Forex Trading – Haram Or Halal?

    Bearing in mind that around 25% of the planet are followers of the Islamic faith, it’s no surprise that the age-old debate of whether or not forex trading is haram or halal is an ongoing one.

    As we unravel in this guide, aspects of forex trading are perfectly acceptable in Sharia Law – but things could get complicated for a person of Islamic faith trying to use a traditional forex account.

    There are elements which would make it nigh-on impossible to remain respectful to your faith at all times, such as overnight and swap fees. So you are 100% better off only trading with Islamic forex brokers. This way, there are no dangers of getting involved with any haram stocks or bonds.

    We’ve put together a bit more information on the key principles of Islamic finance law to help clear the mist.

    Maisir (Speculation/Gambling)

    This area of Islamic financial law is strictly regulated by the following key principles:

    • Bai bithaman ajil (sale with deferred payment)
    • Bai al inah (sale and repurchase)
    • Bai muajjjal (credit sale)
    • Murabaha (cost-plus financing)
    • Mudarabah (profit sharing)
    • Musawamah (price paid by the seller is unknown to the trader)
    • Bai salam (full payment in advance)

    It’s well known that gambling is prohibited for followers of the Islamic faith, but is trading forex also a game of chance?

    There has been much debate on this subject, After all, the fact is you are buying and selling currencies, and the main goal is to make a profit from fluctuating prices in the forex market.

    Now consider that in order to trade forex, traders need to study technical analysis, price charts and historical data – not to mention have a strategy in place.

    One could argue that this means forex trading is anything but a game of chance, and therefore not gambling. Being successful in forex trading requires a certain amount of skill and research – so cannot be considered haram.

    Riba (Interest)

    Riba is essentially Arabic for interest. Riba is haram as no follower of the Islamic faith is permitted to receive or lend money. When it comes to Islamic banking, there is no interest whatsoever on any account, whether savings or current account – and the same goes with mortgages.

    In an attempt to overcome the riba law, people use ‘Bai’ al-Inah’ which means ‘sale and repurchase’. This is an Islamic finance practice which allows people of the Islamic faith to lend.

    For example:

    • Let’s say someone sells you an asset
    • Instead of paying for the asset straight with cash, the ‘lender’ gives you it on credit (at a fixed cost)
    • The ‘lender’ adds a profit element
    • That person then buys the asset back from you straight away, in cash, and at the prearranged price
    • This means that the person who gave you credit owns the asset and you got the money you needed
    • Now you must pay the price of the asset in instalments, as well as the profit element previously agreed

    There are frequent disagreements on this particular technique, usually between the two main areas of Islamic Finance – MENA (the Middle East and North Africa), and Indonesia/Malaysia.

    Normally, when you open an account with a forex broker, in the event you hold a position after the trading session has closed, the brokerage will take a swap commission (overnight financing fee).

    As the broker is essentially giving you a loan indirectly in the shape of leverage. – this means it makes a profit. In this case, it’s considered haram, as interest plays a part.

    The key difference is – Islamic forex brokers abolish swap interest payments. Interestingly, according to Islamic finance law, followers of the faith can take out an interest-free loan in order to make an investment for gains.

    Islamic forex brokers still need to make money for the service they provide, albeit, they will often do this by building their costs into the spread.

    Gharar (Legitimacy of Risk/Uncertainty in Investments)

    Speaking of gharar – the Quran states “And do not eat up your property among yourselves for vanities”. Gharar is also mentioned in the book ‘hadith’ where it states “Sell not what is not with you”. The message is clear.

    Under this Islamic finance code, any trading with excessive uncertainty or risk is strictly prohibited under Sharia Law. For example, short selling, derivative contracts, and futures are all haram because they won’t be settled within the same transaction.

    Whereas trading via Islamic forex brokers is a different kettle of fish. Crucially, you don’t need to worry about breaking these rules as your account has been adapted to remain respectful to them.

    Hand in Hand Islamic Trading

    In Islam, ‘trading’ itself is permitted, but only if it’s done ‘hand in hand’. In years gone by, this meant on a face to face basis. Of course these days most trading interactions are carried out in the online space.

    Some scholars point out that trading should be halal due to the fact it is still between two parties (you and the broker). Still, trading endeavours must be completed in the same trading session.

    When it comes to forex, orders are usually executed immediately anyway, which works out well for Islamic forex brokers and remains faithful to Islamic Laws.

    The long and short of it is that Islamic forex brokers have to respect all fundamentals of Islamic finance and Sharia Law – whilst still giving you access to the global forex markets. By forex trading halal, you can stay true to your religious ethics but also take part in investment opportunities.

    Islamic Forex Brokers: Commissions

    On the contrary to traditional trading broker accounts, Islamic forex accounts come with zero swap interest. This is necessary for it to be considered halal. As we explained earlier, swap interest is created when someone leaves their position open overnight – as they get charged a fee.

    To reiterate, when it comes to an Islamic forex broker account, there is no interest – therefore no swap fees to be seen. In order for the forex brokerage to make some profit, you will need to pay other fees such as:

    • Margin fees
    • Commission fees
    • Admin fees

    All of the above are considered to be halal in forex trading. With that being said, the above fees are likely to be included in the spread. As such, the only ‘fee’ that you pay when using a trusted Islamic forex broker is the difference between the buy and sell price of your chosen forex pair. 

    Islamic Forex Trading: How to Get Started

    By now you are aware that you can remain true to your Islamic faith whilst also trading forex. As such, we are going to quickly run through the three main types of trading you will come across buying and selling currencies.

    Day Trading

    If you are day trading, you have to close your trading position before the market closes. In other words, before the trading day is over. Hence the name, day trading is carried out in one singular day.

    This means that in terms of remaining true and faithful to Sharia Law, there is no overnight fee (swap commission). The good thing about using an Islamic broker account, over a standard one, is that you don’t need to worry about closing the trade and going into overnight fees.

    Scalping

    Put simply, scalping requires opening multiple small scale positions which will all close in a timeframe of just seconds, or minutes. Because the trade closes at such a rapid rate – you don’t need to worry about interest, which makes it perfect for followers of the Islamic faith!

    In fact, if you wanted to, you could theoretically trade using a standard forex account when using a scalping strategy. However, if you would prefer to keep your positions open for longer, then to avoid interest, the only option for you is to stick with an Islamic forex broker.

    Swing Trading

    The only way to utilise a swing trading strategy is through your Islamic forex broker. This uses a strategy of leaving positions open for days or often weeks at a time. Most importantly, it’s crucial that you use a swap-free account to avoid those interest rates.

    If you had used a standard account, for example, you would have to abandon any financial profit. By using an Islamic/swap-free account you are eliminating the risk of leaving a position open overnight by mistake.

    How to Find an Islamic Forex Broker

    Whilst there are thousands of forex brokers on the scene, not all of them will be suitable for followers of the Islamic faith. It can be hard enough at the best of times to find a good brokerage firm, so when you need a specific and somewhat niche account, locating one can be even harder.

    We’ve put together a list of things you should consider when you’re searching for the best Islamic broker for you. If you could do with further inspiration, we have also listed the best Islamic forex brokers of 2020 further down this page.

    Is the Broker Regulated?

    Although this might sound somewhat obvious, you would be surprised at how many brokers fly under the radar. Such platforms offer brokerage services to traders without actually being monitored by any regulatory bodies.

    Firstly, we will never recommend an Islamic forex broker to you which doesn’t hold a licence from an official regulatory body. Secondly, it’s also really important that you also conduct your own research when looking for a broker.

    The initial thing on your list should be to make sure the platform displays a valid licence. If you are in the UK, for example, this will be from the FCA (Financial Conduct Authority).

    If you are unsure, let’s say the website shows an FCA licence number. You can always head over to the official FCA platform and conduct a simple company search to back it up.

    The FCA has rules and regulations in place which ensure your money is kept in a separate account to the broker firm, in case of financial crime or bankruptcy. This is also the case with other trusted regulatory bodies – such as ASIC (Australia), CYSEC (Cyprus), and MAS (Singapore).

    Deposits and Withdrawals

    Another deciding factor for you when looking for an Islamic forex broker is what deposit and withdrawal options are available to you. The vast majority of Islamic forex brokers will let you deposit using a bank transfer via your usual bank (also called wire transfer).

    Bank transfers are a safe payment method most people are familiar with, however, it’s worth noting that this can delay your trading start date by a few days in some cases.

    For that reason, its advisable for you to choose a platform which accepts a variety of payment methods such as Credit/Debit cards and e-wallets like as PayPal and Neteller – as these deposits are instant.

    Withdrawals can take up to 2 days to process, partly due to KYC (Know Your Customer) checks and partly due to your payment method of choice.

    Spreads

    An important fee to consider on your broker platform is the spread. If you aren’t sure what that is, it is essentially the contrast between the buy price and the sell price of the forex pair you are trading. This spread is always measured in ‘pips’ and can greatly affect your overall gains.

    For instance, let’s say the spread for GBP/USD is 3 pips. In order to break even you would need to make at least 3 pips in profit.

    Here’s an example of how the spread in that trade would look:

    • As we said, you are trading GBP/USD via your Islamic forex broker
    • The ‘buy’ price is 1.1200
    • The ‘sell’ price is 1.1203
    • As you can see the last digit shows the smallest unit that the forex pair price will move
    • In this case, the GBP/USD spread is 3 pips

    Variety of Forex Pairs

    If you like to just focus on one or two currencies then you might not think you need a high number of forex pairs to choose from. This is a tried and tested tactic in the forex space, as you are able to devote your research time to fewer pairs.

    It’s sometimes better to do one or two things really well than to be a “Jack of all trades and master of none”. However, there might come a time when you do want to diversify your portfolio, and when that time comes it’s better to acquire access to heaps of FX pairs.

    Ideally, you should be looking for Islamic forex brokers offering a variety of ‘minors, ‘majors’, and ‘exotics’. You will be able to find all of this information on broker’s website and you should check all of the metrics on this list before signing up.

    Technical Indicators and Trading Tools

    Another thing to look out for when you’re looking to open an Islamic forex account is what trading tools and educational material is available.

    To give you an idea of what to look out for we’ve listed some of the most useful technical indicators used by forex traders. 

    • Bollinger Bands
    • Relative Strength Index (RSI)
    • Oscillator
    • Commodity Channel Index (CCI)
    • Support And Resistance
    • Moving Average Convergence Divergence (MACD)
    • Stochastics
    • Parabolic SAR

    Trading forex is no easy feat. Unless you are using a fully automated system it requires research, chart reading and keeping up with global news. This brings us nicely onto trading tools. 

    All Islamic forex brokers are different so will have a different amount and variety of indicators and tools built into the site. You can also access indicators, charts and tools via MetaTrader4, which is a trading platform often supported by some Islamic forex brokers.

    Some of the most popular trading tools utilised by forex traders today are as follows:

    • MetaTrader4 trading platform
    • Fundamental analysis tools such as economic news calendars
    • Financial newswires like Bloomberg and Reuters
    • Pip calculator tool
    • Currency correlation tools
    • Forex time zone converter
    • Broker spread comparison tool
    • Forex volatility calculator
    • Trading diary/journal

    Customer Support Service

    Good customer service is crucial. A good way to gain some insight into the performance of a customer support team is to read some client reviews. If the service is bad, people will talk about it.

    Look out for 24/7 customer support. After all, forex is a 24/7 market. Live chat is usually the most popular option for traders as it’s instant. Alternatively, you can expect to see an email address and in some cases a telephone number.

    If your chosen Islamic forex broker has a healthy presence on social media it can be very useful for keeping up to date and chatting to other traders.

    How Do I Sign-Up With An Islamic Forex Broker?

    By now, we have covered everything there is to know about Islamic forex brokers and what metrics are important when it comes to choosing one. If you have yet to find a suitable broker yourself, we have listed some of the best further down this page for you to consider.

    If you are ready to get started, then we have put together a step by step guide on how to sign up.

    Step 1 – Open an Islamic Account

    The first thing you need to do is go to the brokerage platform you have chosen to sign up to. The procedure is just about the same wherever you go, as the site will ask for your full name, address, email and a unique password.

    Next, you will need to answer a few questions about your financial situation such as monthly salary and employment status. The reason brokers ask about your financial standing is so that they offer suitable products.

    Step 2 – Enter Trading History

    The chances are you will be asked a variety of questions with regards to your trading history. Forex isn’t for the faint-hearted, so this information is going to help the brokerage to understand your level of experience, trades you’ve been involved with in the past, and what investments you focus on.

    Step 3 – Know Your Customer

    Due to KYC which we talked about earlier, you might only be able to deposit funds into your account when you have verified your identity. This is usually clarified by the broker when sending a copy of your passport or driving licence.

    As an extra precaution, most brokers will also require a copy of a recent utility bill or bank statement with your name and address on it.

    Note: eToro – which is our top-rated Islamic forex broker, allows you to deposit up to $2,250 without uploading any ID. You will, however, need to do this before you make a withdrawal. 

    Step 4 – Deposit Your Islamic Forex Broker Account

    Once you have submitted your KYC documentation, you can go ahead and make a deposit. As we’ve touched upon, payment methods do vary, so always check the site to see what will be available to you.

    Bear in mind that bank transfers can take days to clear, whereas other methods are instantaneous.

    Step 5 – Begin to Trade Forex

    Now you’ve gone through steps 1 to 4, confirmed that you are who you say you are, and funded your account – you can begin trading forex.

    If you are somewhat of a beginner in trading forex, then you could either start with a demo account or trade with tiny increments using an Islamic micro account. Even just whilst you find your feet in the forex space.

    Best 5 Islamic Forex Brokers of 2020

    1. eToro - Well Established Trading Platform


    eToro is very well established amongst the trading community and popular with newbie investors due to the easy signup procedure and copy trader feature. You can sign up in less than 5 minutes using a variety of payment methods like bank transfer, credit/debit card and e-wallet. When it comes to Islamic accounts, you can get started with eToro for $1,000.

    Sticking to Sharia Law, eToro executes trades immediately without delay, payment is sent to the buyer and the seller, and the cost also has to be settled without delay. The broker platform offers zero rollover interest. This means that if your position does remain open past standard market hours - no interest is charged.

    Not only that, but eToro Islamic accounts come with zero management fees. The platform instead makes money through its spreads. As an Islamic account user, you will be provided with interest-free leverage. eToro is fully regulated and holds a licence from the FCA, so you know that your money is protected

    Our Rating

    • Super easy to open an account
    • No trading fees
    • Copy trader function
    • Lacking trading tools
    • Accounts US Dollars only
    • $1,000 minimum deposit for Islamic accounts

    2. AvaTrade - Sharia-compliant MT4/5 Trading


    AvaTrade is another reputable broker on our list and fully tailors its Islamic forex accounts to suit the individual client. Being an Islamic account holder, you can expect zero rollover charges (overnight fees) or daily swaps. Instead, you will be charged admin fees when trading forex. This means that you are still able to remain true to Islamic finance laws.

    This brokerage platform supports MetaTrader4 and Metatrader5 so you can trade commodities (as long as they are halal), CFDs and currency pairs with full transparency.

    The platform proudly notes that there will be no hidden commission fees or confusing spread charges you didn’t know about. People of the Islamic faith can also access Islamic halal silver and gold trading. Crypto trading is not permitted on this Islamic account, so if you wanted to trade cryptocurrencies you would have to use a standard account.

    When it comes to forex, TRY, RUB, ZAR, and MXN pairs are all excluded from Islamic Accounts. The rest are all tradable interest/commission-free but you should expect a spread increase - Afterall, Islamic forex brokers still need to make money.

    This brokerage firm fully respects all Islamic finance rules and executes trades immediately as such. Islamic forex traders are entitled to unlimited access to all platforms free of charge (such as android, iOS and WebTrader),

    Our Rating

    • Heaps of currency pairs to trade
    • Easy to open Islamic account
    • Copy trader function
    • No e-wallets

    3. FXTM - Swap-Free Regulated Broker


    FXTM has been on the scene since 1999. As well as being fully regulated and licenced by the FCA - this broker is also very reputable. It’s important to note that although this platform doesn’t specifically offer Islamic Accounts, it does provide swap-free accounts which still respect Islamic finance laws.

    In order to trade using a swap-free account via FXTM, you can only trade particular currency pairs. It’s important to note though that you cannot trade on MT5 using your swap free account. The platform states that if you are using the MT4 platform - your Islamic/swap-free account conditions won’t be applied to any exotic FX pairs.

    In order to apply for a swap-free trading account on FXTM you must first open a standard account, and then you need to go through MyFXTM to choose ‘swap fee markets’ from the menu of MT4. The platform is fully regulated by the FCA, CySEC and others.

    Our Rating

    • Super educational content, tutorials and webinars
    • Regulated by more than one regulatory body
    • Swap-free accounts don't work on MT5

    4. Pepperstone - Super Fast Order Execution

    Created in 2010, Pepperstone is regulated by both the FCA and ASIC. This broker only deals in CFDs and forex. The brokerage also provides Islamic forex accounts - albiet, this type of account is called a swap-free account on the platform.

    By choosing a swap-free trading account you are able to remain true to your faith, whilst accessing the most liquid market in the world. All the while the swap-free account, like an Islamic account, cuts out the interest fees so they cannot be paid or received. If you want to trade with small stakes, FXTM offers accounts from just 0.01 lots, right up to 100 lots.

    The brokerage site boasts an order execution speed of fewer than 30 milliseconds, and over 180 trading instruments to choose from. Pepperstone has a great selection of educational material which is all free of charge, as well as video tutorials and webinars.

    It takes less than 5 minutes to get started and payment methods available are bank transfer, e-wallets and credit/debit cards. The platform charges no deposit fees and when it comes to withdrawals - Skrill and Neteller come with a $1 charge.

    To open an account you must deposit a minimum of AUS$200 (around £110 for UK clients). There are small administration fees to look out for and you will be able to find these on the Pepperstone site. Another plus is that the broker offers clients a free demo account.

    Our Rating

    • Praised for it's customer support team
    • Free demo account for clients
    • Holder of several licences
    • Minimum deposit starting at $200 might be high for beginners
    • Zero protection for non EU clients

    5. ThinkMarkets - Premium Forex Broker

    ThinkMarkets was first launched in 2010 and a decade later it is still a trustworthy online broker for forex traders in over 180 countries . ThinkMarkets is not only an Islamic forex broker, but also provodes an entore suite of Islamic friendly CFDs.

    The broker firm supports popular platforms MetaTrader4 and Trade Interceptor, and the site is very easy to use on web and mobile too. In order for you to stick to the rules of Sharia Law you need to open a swap-free account. This is ThinkMarket's version of an Islamic forex account. With a presence in the Middle East, this broker does fully understand the principles of Islamic finance law.

    With this in mind, the account is entirely 'swap-free' meaning you will not have to worry about ‘riba’. To make up for the broker platform not making money with interest fees, the site will charge you admin fees every week. We’ve seen cases where brokers charge a daily fee, but this is not the case with ThinkMarkets. Instead, these fees depend on the instruments you are trading and range from $5 to $10.

    The minimum deposit on this platform is $250 (which is about £137). As with the other brokers on our list this site is regulated and licenced by the FCA and ASIC, so your money is protected by client fund segregation rules.

    If you’re not quite ready to take the plunge and start trading Islamic forex with real money, then we recommend trying the platform's demo account which is free to use. To get started you need to open a standard account and email the ThinkMarkets team to request an Islamic trading account. Then you can deposit into your new swap-free trading account with ease.

    Our Rating

    • VPS trading service
    • Holds full FCA and ASIC licences
    • Minimum deposit $250

    Conclusion

    In this guide, we’ve covered just about all there is to know about Islamic forex brokers, as well as key metrics to look out for when finding a suitable one for your trading endeavours.

    As we noted, it’s important to remember that not all broker platforms will advertise Islamic accounts as such, as they are sometimes used as ‘swap-free’ or ‘halal’ accounts. In a nutshell, this means that all fees are waivered in respect of Islamic finance laws.

    As we covered, by only using Islamic forex brokers which are fully regulated, you know that your trading funds are automatically segregated from that of the brokerage, amongst other regulatory safety nets. All brokers recommended by us are fully regulated for your safety.

     

    eToro - Buy and Invest in Assets Commissions-Free

    Our Rating

    • Buy over 800 stocks, cryptocurrencies, and ETFs without paying any commissions
    • Trade thousands of CFDs
    • Deposit funds with a debit/credit card, e-wallet, or bank account
    • Perfect for newbie traders

     

    FAQs

    What is an Islamic Forex Broker?

    An Islamic forex broker is a forex broker which offers swap-free trading to allow traders to remain true to their Islamic faith, which forbids interest fees

    How can I open an account with an Islamic forex broker?

    Generally speaking, once you’ve found a forex broker you like, you can just contact customer services and ask them to modify a standard account to suit your needs

    How can I deposit into my new Islamic Forex Account?

    You can deposit into your Islamic forex account very easily. On most platforms it’s just a case of logging in and choosing a payment method to deposit funds.

    Isn’t overnight financing haram?

    Yes, it is, so on Islamic forex accounts, this fee is waivered.

    If Islamic forex brokers don’t charge interest, how do they make money?

    The majority of the time brokers make money through the spread - which is the contrast between the buy and sell price of the asset.

    Will I be limited to what FX pairs I can trade on an Islamic Account?

    In most cases, all currency pairs can be traded within Sharia Law, due to the fact Islamic accounts have been specifically tailored for followers of the Islamic faith. However, different brokers have different rules, meaning that some pairs might be restricted.

    What exactly is a swap-free account?

    Islamic accounts are sometimes referred to as swap-free accounts. In a nutshell, this allows you to keep positions open overnight without incuring an interest fee.

    Author : Samantha Forlow

    Samantha Forlow

    Samantha is a UK-based researcher and writer that specializes in all-things finance. This covers everything from traditional equity and fund investments, to forex and CFD trading. Samantha has been writing financial-based content for several years and has a variety of publications in the online domain. Crucially, she is able to explain complex financial subjects in a newbie-friendly manner.