Shariah advisor licensed by the central bank of bahrain

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Retail Forex 

Trading: Views 

from the front 

lines of Islamic 

Finance 

August 2018

SHARIAH ADVISOR LICENSED BY

THE CENTRAL BANK OF BAHRAIN

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Retail Forex Trading: Views from the front lines of Islamic Finance

SHARIYAH REVIEW BUREAU

2

Introduction 

Foreign exchange trading has been one of the fastest-growing activities 

among private investors in the past 15 years. According to research 

by Citi in 2014, 4 million people are now trading currencies online, 

and retail traders account for around 20 per cent of the average daily 

turnover of the global spot forex market

1

. An estimated $5.3tn changes 

hands every day in the foreign exchange markets. On a daily basis, the 

financial institutions of the City of London make speculative currency 

trades worth nearly as much as the entire nation’s GDP for a whole 

year. According to the Global Policy Forum, in 2011 only 0.6% of foreign 

exchange could be traced to genuine international trade in goods and 

services. Of the rest, a minimum of 80% was directly attributable to 

exchange rate speculation

2

. However, three quarters of people who 

trade with online currency firms lose money

3

. With such easy access to 

the financial markets and minimal margin requirements, it is becoming 

common for Muslims to consider Forex trading as an investment. Thus, 

this paper considers the Shariah compliance of trading in retail forex by 

individual Muslim investors. To appreciate the discussion on currency 

trading, the paper initially discusses the concept of money in Islamic 

economics before discussing the juristic interpretations related to fiat 

currencies.  Thereafter, the different methods and products to trade 

Forex are investigated and an opinion from a Shariah perspective is 

offered for each type of trade.