Islamic Forex Accounts or Not Riba Accounts

Islamic Forex accounts or No Riba accounts are accounts that were created to accommodate clients who are Islamic. They are based on the religious beliefs of Islamic clients which basically state that people should give and expect nothing in return and as such they do not pay or receive interest within the economic industry.

This belief was adapted to Forex Trading and as such Islamic clients can apply for an Islamic Forex account which allows them to trade and not pay any interest on open positions.

Within the Forex trading industry, Forex companies charge interest on client positions that are opened overnight; not as an excuse to charge clients for the Forex company’s profits, but to cover the charges that banks impose for positions that Forex companies have open overnight.

These interest charges are known as SWAP, or rollover rates, and may vary depending on the currency pair the client is trading and may also be adjusted from time to time. The reason for this is that it is an interest charge and as we all know, interest rates differ from bank to bank and are also adjusted from time to time.

The only two problems encountered due to Islamic Forex accounts are that non-Islamic clients who are therefore not entitled to Islamic accounts feel that it is unfair. This is not the case, as within day trading Forex markets swaps are part of the industry and generally the Islamic accounts offered have other charges that normal accounts do not face. Depending on the Forex company, this may be higher spreads, a limitation on the length of time a position can be held open, or certain hidden fees.

The second downfall caused by Islamic accounts is that some clients take advantage of the benefit of not having SWAP to pay. They can do this by opening positions and leaving them open for long periods of time, so at some point your position will make a profit. This is unfair to Forex Company, as they are the ones left to pay the SWAPs charged by the banks they work with.

Another method is if a client opens an account with two Forex companies, one is an Islamic trading account and the other with the second Forex company is a normal trading account that pays interest on long positions. As such, they will take a short position with the Islamic account and a long position with the other Forex company so that the profit made on one position cancels the losses on the other account and the client keeps the interest earned. This is called Carry Trades and it is an unfair method of trading which is why it is not allowed by professional Forex firms.