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As a forex trader or other type of trader, you may indeed be wondering what swap-free trading actually is. This type of trading is used by those following Shariah law as the law forbids Riba, on the basis of usury, and due to this, the paying of interest is forbidden.
In forex trading, the swap, also known as the overnight fee is the interest the trader either pays or gains based on their asset when it is held during leveraged trading. This type of interest either paid inward or outward on a regular forex trading account would not be halal under Shariah law and therefore, forex brokers often facilitate the opening of swap-free accounts.
The law of Islamic trading is complex in terms of how they can be applied in each market for forex trading and because of this, we will take a look at each type of traded asset and how the law impacts each.
In forex trading, the “swap fee” is typically charged to you as a trader and acts as a form of tax you should pay, although occasionally depending on the asset, it can be earned by you. Either way, this kind of fee, which depends on the forex currency pair you may be holding, is not permitted in Islamic law.
For this reason, these kinds of fees are not charged in Islamic accounts, thus, they are swap-free.
Stock dividends under Islamic trading and Shariah law are considered halal. Why is this? Well, these gains are made directly from the growth of a company you have invested in and are somewhat quantifiable in nature, at least in theory. This separates them from interest which can be viewed as punitive in nature.
The complexity deepens though when we consider investing in companies such as alcohol brands, tobacco brands, and others. This kind of investing would be haram and so, you should be careful as a trader following Islamic law, what you choose to invest in.
ETFs and Stocks are halal due to the fact that they both relate to investing in pools of companies. Therefore, any monies gained from this kind of investment can be viewed as coming from the growth of the company.
As mentioned above, there may be some haram companies included in these pools. To negate this, as a trader, you should simply calculate how much of the profit is as a result of these companies and donate that percentage of gain to a charity.
The simple answer here is yes. Typically, bonds are considered haram as they are technically loans to be repaid over a period of time which is inclusive of interest. There are however, Islamic trading compliant bonds. These Islamic bonds are certified as being compliant with Islamic laws.
Since forex broker demo accounts are only dealing in virtual funds and not your real money, then they can all be considered as Halal and compliant with any Islamic trading laws.
Trading with an Islamic account is typically free of charge. This is good news for any trader. With that said, some broker minimum deposits may be higher than usual in order to open an account, although not always.
Opening an Islamic account is usually as easy as contacting the customer support team of any top forex broker. With some brokers, but not many, the trading costs could be higher to make up for the absence of swap fees. You should consult your individual broker on this. They may impose a fee that is not interest and is, therefore, compliant with Islamic trading law. This admin fee is typically applied after a number of days holding an asset.
Another thing which could occur, although less frequently, is the raising of spreads or commissions for Islamic trading accounts, which can be balanced by choosing a broker with low spreads, such as ECN brokers (consider checking our ecn forex brokers list). There may also be some exotic currency pairs or less common trading markets that are unavailable when trading through an Islamic account.