The First Question
I want to put a question regarding the Forex Market (Foreign Exchange business). As you know, in Pakistan, M/s Harvest Topworth International deals in business of foreign currencies on the basis of fluctuations between different currencies like the US Dollar, the Japanese Yen, the German Mark, the French Franc etc.
Is such a business allowed in Islam? Please give me the detailed point of regarding the Qur’an and the Sunnah etc.
The Second Question
I want to know the position of foreign exchange trading (Forex trading) in Islam. Forex market is claimed to be the biggest market on earth with turnover of $1.5 trillion daily, which is equal to 3-4 months turnover of New York stock exchange. In forex trading participants are central banks of different countries of the world, brokers as well as individual traders. Gains are realized on the basis of ups and downs of currency values. These ups and downs are however, purely based on factors like inflation, economic strength, GDP and Balance of payments etc. Unlike stock exchanges, No single person or institution can monopolize the market (due to huge volume). It must also be noted that currency values are determined as a result of demand and supply, same as the case of any other commodity. It is also noteworthy that dealing in forex requires specific knowledge and skills. Not every body can deal in such transactions. In short you may say that it is just like an ordinary trading except that the commodity is currency.
In the light of above circumstances please let me know the tenets of Islam concerning the issue.
You may learn more about forex on sites or by search on any search engine.
Although both the questions deal with the issue of trading in foreign exchange, yet Mr. Nadeem has not mentioned the working of the referred company, due to which it is difficult to give any specific comments with reference to the particular company. However, Mr. Nazir has given some details of the working.
Irrespective of the working of any specific company, I would like to present a simple principle on the basis of which the two brothers should be able to judge the ‘allowable’ and the ‘disallowed’ in the stated business.
Subject to the condition that the particular commodity being traded is neither expressly prohibited by the Shari`ah nor does its use have a clear potential of negatively effecting the morality of its consumer/users, Islam does not prohibit trading of any commodity.
In my opinion, the fact that the commodity being traded is not a real but a financial commodity does not change its status of being allowed in the Shari`ah.
September 21, 2000