For people of the Muslim faith, trading in any form can be a complicated business due to the Islamic laws that cover areas around money. If you are a Muslim and you want to start CFD trading, how can you be confident that the account you open is halal and that you aren’t breaking any laws?
Islamic trading account basics
In theory, Muslims can conduct any trades including on stocks, Forex and CFD trading if they look to cover some basic criteria to keep their actions within Islamic law. Three of the critical criteria to cover are:
- Immediate execution of trades – by cutting out the delay, you satisfy the rule of ‘prompt hand to hand exchanges between two parties’.
- Immediate settlement of transaction costs – avoid accounts where open trades are automatically continued into the next trading day as these can often incur interest charges.
- Zero interest rates on trades – to follow the rules around riba, it is vital that there is no interest applied to the account or transactions otherwise they will be invalid and not halal.
It is always advisable that if you are unsure in any way, if what you are doing is permissible under Islamic law, you should consult with a religious leader who is an expert on the topic. That way you can be wholly confident in what you are doing.
Examples from stocks
CFD trading can take place on a wide variety of markets including stocks and shares, commodities and currencies. The nature of this asset should also be considered for an Islamic trader. Let’s use stocks as an example.
You would be within the law trading in companies with permissible practices. These would include companies such as shipping and manufacturing, clothing, medical equipment, real estate, tools, and furniture. These types of companies are free from haram practices such as cheating or borrowing by riba (unjustified lending). They are known as ‘clean’ companies.
Islamic traders need to be aware of companies that deal in prohibited practices. It includes tourism companies, those trading in alcohol, nightclubs, commercial insurance companies and any riba-based banks. Stocks should not be traded in these types of businesses.
The third category is the ‘mixed’ companies that most of their work is permissible, but some aspect of their business is haram. An example would be a transport company that holds interest based-bank accounts and is financed by riba-based loans. There are ways to deal with this, but if you are uncertain, it is often best to avoid trading in these types of companies. Or, again, seek to advise from a religious leader if you are unsure if a company is suitable and legal or not.
How to trade within the laws
The key way to ensure that you are trading within Islamic laws is to find a platform that does not substitute additional fees by widening the spread on Islamic accounts. The aim is to find a platform that applies no extra charges. It allows traders to make the trades without breaking the law that prohibits them from paying interest. An interest charge transferred to a different kind of fee is still seen as an interest payment in the eyes of Islamic law. This practice is known as ‘swap-free’ in disguise.
GCC Investing is firmly against this practice and can offer a GCC Investing Islamic Account that allows traders to conform to Islamic laws and still conduct CFD trading through the platform. We also constantly monitor investing clients on the platform to ensure fair and ethical trading conditions to allow our customers to follow Islamic law while enjoying a trading career.
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