What is Forex?

Forex is short for Foreign Exchange, which refers to the trading of foreign currencies.

Therefore, it is extremely important to ensure that such transactions are carried out in accordance with specific conditions.

If the conditions are not met, then the transaction becomes void and involves forbidden riba (usury).

What are the conditions for buying and selling?

Both items must be of equal quality and quantity if the exchange involves two items of the same type. For example, gold exchanged with gold, or ringgit exchanged with ringgit. If not, riba al-fadl will occur.
The transaction must be carried out on the spot without any delay. Otherwise, riba al-nasi''ah will occur.
There must be an exchange of possession before the parties separate. If not, the transaction is void and riba al-yadd is deemed to have occurred.

Ruling on Individual Spot Forex Trading via Electronic Platforms by the National Fatwa Council (Muzakarah Jawatankuasa Majlis Fatwa)

The Muzakarah affirms that foreign exchange trading (forex) by individuals on a spot basis (individual spot forex) through electronic platforms involves ribawi items (i.e., currencies) and from a fiqh perspective, it falls under the ruling of Bay al-Sarf, which requires compliance with the general conditions of buying and selling as well as the specific conditions of Bay al-Sarf as follows.

The contracting parties must have the legal capacity to enter into contracts (Ahliyyah al-Ta''aqud)
The purchase price must be clearly known by both contracting parties
The item being purchased must exist and be fully owned by the seller and must be deliverable to the buyer
The contract expression (sighah) must demonstrate mutual consent of both parties, with no element of deferment, and the offer (ijab) and acceptance (qabul) must correspond and match each other in terms of characteristics and quantity.

Specific conditions of Bay al-Sarf:

Taqabbudh (exchange of possession) must occur between both items involved in the forex platform before both parties conducting the transaction separate from the contract session
Currency trading must be conducted on the spot and no deferment is allowed
The Bay al-Sarf contract must be free from khiyar al-Syart (conditional option).

In addition to fulfilling the above conditions, the Muzakarah also stresses that foreign exchange trading (forex) operations must be free from any element of riba, al-Salaf wa al-Bay'' (lending on the condition that a sale transaction takes place), gambling, excessive gharar (uncertainty) and oppression or exploitation.

Forex Ruling by the National Fatwa Council

Based on a detailed study conducted, the Muzakarah found that foreign exchange trading (forex) by individuals on a spot basis (individual spot forex) through electronic platforms contains elements such as riba through the imposition of rollover interest, the condition of sale in lending through leverage, unclear qabd (possession) during the exchange transaction, selling of currencies not in one''s possession, and speculation involving gambling.

Furthermore, it is also not valid from the perspective of Malaysian law.

In this regard, the Muzakarah agreed to rule that foreign exchange trading (forex) by individuals on a spot basis (individual spot forex) through electronic platforms as they currently exist is haram (prohibited) because it contradicts the requirements of Shariah and is also not valid under the country''s laws.

Accordingly, Muslims are prohibited from engaging in currency trading of this nature.

The Muzakarah also stresses that this ruling does not apply to foreign currency exchange transactions conducted over the counter at licensed money changers and foreign currency exchange transactions managed by financial institutions licensed under Malaysian law.

Buying, selling and business transactions

Personally, buying and selling transactions are valid as long as the items traded are commodities.

However, exchanging currencies with money is not a commodity that can be traded.

Money is a medium of exchange between two parties in buying and selling transactions and business dealings.

Therefore, forex falls under the ruling of haram in this matter.

However, it is different if the currency exchange is conducted between licensed institutions such as money changers or registered financial institutions, as long as the conditions are met, namely payment is made in cash, not on credit, and there must be no delay in the process of handing over and receiving the money.

A hadith narrated by Ubadah bin Samit RA states that Rasulullah SAW said, which means:

Gold exchanged with gold, silver with silver, wheat with wheat, barley with barley, dates with dates, salt with salt, (must be) done with equal quality and quantity, and on a cash basis (without deferment). If (the transaction involves) different types, then conduct the trade as you wish, with the condition that it is done on a cash basis (without deferment).

Hadith narrated by Imam Muslim (no. 1587)

Conclusion

Besides that, the issue of forex is still unclear to many, and it remains a question mark for a lot of people today.

In my opinion, always go back to the basics.

Do your research first before venturing into any form of investment.

May we always be on the right path in accordance with Shariah law while keeping pace with the speed of the global economy.

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Frequently Asked Questions (FAQ)

Is forex haram in Islam?

The Muzakarah Jawatankuasa Majlis Fatwa (National Fatwa Council) ruled that speculative forex trading through online platforms is haram because it involves elements of gharar (uncertainty), maisir (gambling), and riba (usury). However, exchanging foreign currencies in cash for genuine needs (such as at a money changer) is permissible as long as it fulfils the conditions of Shariah.

What are the conditions for halal currency exchange according to Islam?

Currency exchange must be done on a spot basis (cash), without deferment, with no delay in the exchange of possession, and not on credit. If it involves the same currency, the quantity and quality must be equal. If different types are involved, the transaction must be conducted on a cash basis without any delay.

Why are many people attracted to forex despite the controversy surrounding its ruling?

Forex is attractive because the market operates 24 hours, high leverage allows trading with small capital, and there is potential for large profits. However, high leverage also means a high risk of losses. Many are unaware that more than 70% of retail forex traders lose money.

What are halal investment alternatives besides forex for Muslim investors?

Muslim investors can invest in Shariah-compliant stocks on Bursa Malaysia (over 700 options), Shariah unit trusts, sukuk, Tabung Haji, ASB, and physical gold. Shariah-compliant stocks offer high return potential with better regulatory transparency compared to forex.

As a Muslim investor, it is important to ensure that every investment complies with Shariah law — and Shariah-compliant stocks on Bursa Malaysia offer a transparent, regulated, and halal alternative.

Open a CDS account to start investing in Shariah-compliant stocks on Bursa Malaysia.

Download the free stock basics ebook to understand the fundamentals of halal and Shariah-compliant stock investing.

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