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How to Choose the Best Islamic FOREX Broker: Explained

Selecting an Islamic broker is not vastly different from selecting a regular broker. The basics remain the same – you need a broker that is well established, well capitalized and has worked hard to give you a good range of market-leading features. Only after you are satisfied with those elements should you turn your attention to what sets Islamic brokers apart. 
Islamic trading has many similarities to regular trading, but also some key differences. To begin, it is especially important for traders practicing the Islamic faith to trade in a way that is consistent with the teachings of the Holy Quran. It is, quite simply, a deal breaker for Muslim traders to have access to trading conditions that are compliant with what is known as Sharia finance.
In this article, we will cover the most crucial elements of Islamic trading, and we will point you toward the types of features that set Islamic brokers apart from each other. It is crucial to note that while we offer you commonly accepted interpretations of Sharia finance, we do not claim to be the final authority on these matters. If you still have doubts, you are advised to seek counsel from religious experts.

Best Islamic FOREX Broker 2022

FXDD Broker

FXDD Broker

FXDD received the highest score in our survey (92.15). One of the first FOREX companies to offer a credit card in order to allow traders to withdraw their profits, this New York-based company has the UK's FCA license under its belt. It also has a rich portfolio of assets, offers a relatively low spread, in addition to the MetaTrader4 (MT4) platform. Further, it has excellent and fast customer service, and also offers traders a variety of ways to deposit money.
Broker Evaluation 7.22
Regulatory Bodies
Minimum Deposit $450
Islamic Account yes
Payment Methods Bank transfer - credit card - Electronic Banks - Crypto
Main Branch United States of America
Customer Service 24/5
Demo account Yes
Trading Platforms MT4 - MT5 - C TRADER -Web Platform

Pros

  • Established in 2002.
  • Segregated client funds.
  • Low minimum deposits.
  • No commissions on the Standard Account.
  • A choice of two account jurisdictions.
  • Multiple platform support and comprehensive market data and analysis.
  • A good range of currency pairs and other assets to trade.

Cons

  • Not available to traders in the US.
  • Relatively limited range of instruments.
  • EU-client leverage restricted to 1:30.
ICM capital Broker

ICM capital Broker

CM Capital is considered the industry leader in deposits and withdrawals, whereby each withdrawal does not take more than five business days. Moreover, the company offers its customers a handy credit card to withdraw their profits, in addition to enabling customers to use various deposit methods. The company, which is licensed by the UK's FCA, has several branches around the world. Among other things, it has a rich portfolio of assets, especially stocks, offers a low spread, as well as the ability to use MT4.
Broker Evaluation 8.11
Regulatory Bodies
Minimum Deposit 500$
Islamic Account yes
Payment Methods Bank transfer - credit card - Electronic Banks - Crypto
Main Branch United Kingdom
Customer Service 24/5
Demo account yes
Trading Platforms MT4 - MT5 - C TRADER -Web Platform

Pros

  • Segregated client funds.
  • Regulated by the UK’s FCA.
  • Established in 2009.
  • More than 10,000 ICM Capital users and traders.
  • Reasonable minimum deposit from $500.
  • Decent funding options.
  • No swaps.
  • MetaTrader4 (MT4) desktop and mobile download.

Cons

  • Does not allow scalping.
  • Not ASIC-regulated.
  • Relatively limited range of instruments.
  • Slow live-chat service.
  • Relatively high trading fees.
  • Limited range of trading tools and resources
XTB Broker

XTB Broker

What distinguishes XTB is the fact that it offers the best customer experience among all the companies we have surveyed. Indeed, it boasts the fastest response rate from all the companies under investigation. This is especially relevant, since the market is always on-the-go, and so you need to act fast. XTB offers lots of asset classes, as well as the ability to use the MT4 trading platform. Finally, it maintains a relatively low spread, which is suitable for quick deals.
Broker Evaluation 8.55
Regulatory Bodies
Minimum Deposit 500$
Islamic Account yes
Payment Methods Bank transfer - credit card - Electronic Banks
Main Branch United Kingdom
Customer Service 24/5
Demo account yes
Trading Platforms MT4 - MT5 -Web Platform

Pros

  • Long history of operation.
  • Globally recognized, having won multiple awards.
  • Some of the lowest FOREX spreads in the market.
  • Regulated by the FCA (UK).
  • Offers protection for client accounts.
  • Emphasis on customer service.
  • Excellent support, learning and research tools.

Cons

  • Does not accept US clients.
  • Non-FOREX spread costs are relatively high.
  • No GSLO.
  • No back-testing or automated trading capabilities.
  • Conditions vary according to regulation and entity.
ig markets Broker

ig markets Broker

IG is arguably the best broker when it comes to security and trust, boasting, as it does, licenses from 10 regulatory bodies, including the all-important FCA from the UK. The company is also a bank and is a publicly traded company in London. It is known for offering more than 10,000 asset classes of currencies, commodities, future contracts, ETFs, indices, cryptocurrencies etc. Further, it has its own state-of-the-art trading platform and offers a relatively low spread.
Broker Evaluation 7.54
Regulatory Bodies
Minimum Deposit 250$
Islamic Account yes
Payment Methods Bank transfer - credit card - Electronic Banks
Main Branch United Kingdom
Customer Service 24/5
Demo account Yes
Trading Platforms Proprietary Platform -MT4 - Web Platform

Pros

  • Easy-to-navigate platform that is simple for beginners to master.
  • Margin rates are easy to understand and affordable.
  • Mobile and tablet platforms offer full functionality of the desktop version.
  • Accepts US clients.
  • Access to more than 100 currency pairs
  • Emphasis on education and research.
  • Regulated by the FCA (UK), as well as the CFTC and the NFA (US).
  • Offers protection for UK/EU client accounts.

Cons

  • US traders can currently only trade FOREX.
  • No GSLO for US-based traders.
  • No account protection for US clients.
  • Relatively high share-CFD fees.
  • No copy trading or back-testing integration on IG platform.

The Foundations of Islamic Trading

There are a few key rules to follow if you are going to trade according to Islamic principles, but one rule stands out – it is forbidden for an Islamic trader to earn or pay interest
Many regular traders take part in day trading, which sees them maintaining open positions for short periods of time, often a few hours or less. However, from time to time, some traders must keep their positions open for longer than 24 hours. In this case, it is accepted practice for traders to pay interest to the broker for this facility, otherwise known as a rollover fee. In Sharia finance, this customary practice is prohibited.
Interest payments incurred for keeping overnight positions open might be commonplace for regular traders, but for followers of the Islamic faith, they are a non-starter. This is where Islamic brokers come in, as they have developed accounts that comply with the requirements of halal (acceptable) Islamic trading while staying away from what is haram (not acceptable).
There are many more rules that need to be followed for traders to remain in good standing with Sharia finance. We will cover these later in the article. However, it is crucial to note that receiving or paying interest is a cornerstone issue to navigate when a follower of the Islamic faith starts their trading career.

Is FOREX Trading Allowed for Islamic Traders?

The question of whether FOREX trading is acceptable or unacceptable within Sharia law generates much conversation, which is why it is worth underscoring the commonly accepted positions. Islam allows for the enhancement and improvement of your personal situation. This means that seeking to improve your financial situation through trading is acceptable
It is accepted that FOREX trading can be considered halal according to the principles of Islamic finance. Bear in mind that although Islamic traders are not required to pay interest, they must pay the margin, commissions and administrative fees like everyone else. Also, to compensate for losing out on swap fees, brokers usually widen the spreads between currency pairs, which benefits them but costs Islamic traders.

What Is an Islamic FOREX Account?

An Islamic FOREX account is one that has been developed with the Islamic trader in mind. Paying close attention to the requirements of Islamic faith and the stipulations of the Quran, brokers ensure that none of the features of the account contravene the teachings of Islam.
As we have mentioned, rollover fees cannot be levied if an account is to be compliant with Sharia finance. Islamic accounts are often referred to as swap-free accounts. These accounts are different from normal accounts in several crucial ways. 
Before we go on, let us delve deeper into why it is necessary to structure Islamic FOREX accounts in this way. In Islam, the concept of “hand-to-hand" trading relates to the ancient practice of completing transactions face to face, in one sitting, so that interest does not come into the equation
However, with the evolution of commerce resulting in electronic transactions taking place across continents, scholars have indicated that hand-to-hand should be replaced by a modern equivalent, which equates to completing a transaction in the same session. Naturally, this poses challenges in the context of an overnight interest charge.
Sharia-compliant transactions in the FOREX world must ideally be conducted very quickly, so currencies can be transferred without delay, with all costs and fees settled at once, in a manner resembling hand-to-hand trading. However, it is not always the best strategy for Islamic traders to close their positions so rapidly, as they will often need to hold their positions open overnight to maximize their chances of making a profit. 
To facilitate this, brokers make an exception to their rollover fee rule by creating a swap-free account option. This exemption makes all the difference because without it, Muslim traders would not be able to take part in the FOREX trading world.
How to Open an Islamic FOREX Account

How to Open an Islamic FOREX Account

Opening an Islamic account is not much different to opening a regular account. You will need to submit all the relevant documentation, such as national identity documents and proof of income. Bear in mind that some brokers have been known to request a letter from a religious authority stating that you are a practicing Muslim to open your account. However, this is not standard practice.
Once your account has been approved, normally one to two days after you make the application, you will be able to fund your account by making the first deposit. After your account is funded, you can start to trade as you would with a normal account.
Many brokers also offer you the chance to practice on an Islamic demo account. It is a good idea to take advantage of this as you can practice your strategies in real market conditions without any of the risk. You will also start to get familiar with the ways in which pricing and fees work within an Islamic account.

What Is a Swap?

This is one of the key terms you will encounter in Islamic FOREX trading. Whenever you leave your position open for more than 24 hours, you are required to pay interest for the privilege of this facility. This interest is called a swap fee or rollover fee. As we have discussed, the need to pay interest comes from the fact that the broker is effectively giving you a loan.
However, as interest payments are not allowed according to Sharia law, Muslim traders would be in an impossible situation if they wanted to actively trade FOREX. This is where the concept of the swap-free account originated.
Brokers have gone further by opening access to more instruments in Sharia-compliant ways. Besides FOREX, Islamic traders can invest in indices, commodities and shares. With regard to share trading, you should note that, according to Sharia law, it is acceptable to buy shares as a stake in a company. However, it is haram to buy shares in a company that carries out activities against Sharia Law, such as gambling and/or alcohol production.
Two notable items that you cannot trade as an Islamic trader are bonds and treasury bills. Bonds are issued based on a fixed interest rate, the proceeds of which will be paid at the end of the life of the bond. This is against Sharia law. Similarly, futures contracts contravene Sharia law as the exchange of goods happens at a future date, violating the hand-to-hand principle.

Important Matters to Note as an Islamic Trader

So, what do Islamic traders have to consider when they begin their trading career? The following are the four main Islamic trading principles:
● You cannot pay or receive interest.
● Transactions must be completed as quickly as possible.
● Gambling is not allowed.
● The risks and benefits of a transaction must be shared between the two parties. 
Conventional banking in the Western model does not easily support these principles. This explains the need for Islamic trading, a special type of trading that respects the dictates of Sharia Law as they relate to finance. Here are some of the practical considerations that arise when employing specific trading approaches. 
1. Day Trading
Day trading consists of working a strategy that requires you to open and close positions during the same session. In this instance, there are no swap or rollover fees to be paid. As you can see, day trading does not contravene Sharia law as no interest is paid or earned. So, what is the point of having an Islamic account for day trading? 
It is fair to say that if a Muslim trader can stick to day trading without ever rolling over trades into the next day, then they can use a regular account to perform day trading. If a trader believes they might be tempted to hold trades open into the next day, then it is a good idea to work through an Islamic account. This will ensure that they remain compliant according to Islamic principles for the times they hold trades open longer than a day.
2. Scalping
Scalping involves opening a position with the intention of closing it very quickly. Scalping trades can be opened and closed within a few minutes. Traders who scalp do so with the intention of opening several small positions and making a tiny profit from each. As the transaction window for scalping is so small, there is no interest to be paid, making this form of trading acceptable in Sharia finance.
Normally, Islamic scalpers can use standard accounts that do not need the special facilities of an Islamic account. In the same way as normal trading, if a scalper goes on a roll and wishes to keep their positions open, then at that point they would need an Islamic account.
3. Swing Trading
Swing trading involves keeping positions opened for days or weeks. As we have mentioned, any trading style that involves a position remaining open overnight is destined to attract interest, and this makes it against Sharia finance. Therefore, swing trading must be conducted free of interest payments.
As a Muslim trader, if your strategy revolves around swing trading, you must work through an Islamic account. What about Islamic traders who employ a combination of strategies? Some brokers will allow traders to hold regular accounts and Islamic accounts at once. It takes some research to find out who these brokers are, and it takes practice to understand how workable it really is to alternate between account types.

How to Select the Best Islamic Brokers

The number of Islamic traders is increasing all the time. This has driven growth in the base of Islamic brokers from which to choose.
 From what we have discussed in this article, there are many elements to consider when comparing Islamic brokers. Here are some important questions you can ask of a broker as you think about working with them:
● Is the account-opening process comfortable and quick?
● Are the fees, especially spreads, acceptable?
● Do I have the same level of functionality as regular accounts?
● Can I alternate between regular and Islamic accounts?
● Is there a demo Islamic account facility?
● Are there educational materials to teach me how to keep my activities halal?
● Has the broker created communities of Islamic traders like me?
Traders are advised to check that their broker can handle the basics of trading before asking if they can handle the unique requirements of Islamic trading.

FAQ

What are the advantages Islamic trading?

One of the main advantages of Islamic accounts is that they give market access to Islamic traders who would otherwise not have been able to take part in this thriving global marketplace. The next big advantage is that there are no swap fees on Islamic accounts. This way, you can open long-term positions while not violating the hand-to-hand principle.

What are the disadvantages of Islamic trading?

When traders short positions, they receive positive interest payments when they make profits. Muslim traders do not have the benefit of earning interest from shorting strategies. Also, when broker interest fees are removed, many brokers either make up for this through flat admin fees or by increasing the spreads on FOREX pairs, often to the detriment of Islamic traders.

Is FOREX trading allowed under Islam?

Purchasing currencies and profiting from the exchange of currencies is acceptable under Sharia finance. In the pursuit of improving their financial position, traders can pursue strategies like FOREX trading. However, they must never pay or receive interest.

If FOREX trading is allowed, are there any restrictions?

Yes. Many brokers do not permit Islamic traders to buy selected exotic accounts such as the Turkish lira or the Mexican peso. This is not an exhaustive list, so you are advised to check with your broker. The reason for banning some exotic currencies is because these countries frequently have financial systems featuring high interest rates. It is, therefore, haram for traders to be “associated” with these currencies.

Does Islam allow CFD trading?

No, this type of trade is not allowed. When you buy a contract for difference (CFD), you are not buying a product or the underlying asset of a type of instrument. You are trying to predict how the price will develop in the future so that you can benefit from making the right prediction. This is not acceptable according to Sharia finance because you are not taking an equal share in the risk of the transaction.
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