FOREX Trading – Halal or Haram
Channel: Hacene Chebbani
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him on the Mona
Salam Alikum lavoir Katha
hamdulillah hamdu Lillahi Rabbil Alameen wa salatu salam ala Sayidina Muhammad wa ala alihi wa sahbihi JBay.
So, your brothers and sisters today inshallah we'll be talking about as I said, as you can see forex trading, is it halal or haram and what is Forex? Is currency exchange exchanging currencies in the market, it is called Forex nowadays, especially when it is done online, through brokers brokerage houses. So, we'll talk about it insha Allah and talk about how the we do it, what is the what's going on in these markets, and the way these currencies are exchanged in the market.
But before I go into that, I would like to establish something,
there is a Sharia ruling that we have to, we know it and we need to be aware of it, that exchanging currencies,
with the basic conditions stipulated by the Sharia is hilarious.
So you go, you need to exchange your money, you have Canadian dollars, and you want to buy American dollar, you go to the cash store or to the bank, and you want to buy some money, some Canadian American dollars on the spot, you give them Canadian dollars and you get your American dollars, then this is halal.
Even if you do it with the intention of trading, like with making money, you keep these American dollars. So when the prices go down or go up, it depends on your plants, then you can sell them again and make some profit. Even if you have this intention. It's halal. There are some scholars who don't prefer this said money in Islam is not a commodity to be traded to be exchanged. It is a medium of exchange. And that's why many scholars like him have him play in Britania ezeli. And many classical scholars they prefer or they believe that money should have a firm or, you know,
you know, when the you know, and changed and change the value in the market. So they don't believe the belief that if the value of money keeps on changing, then people will be will be affected
now this is clear hamdulillah what's happening now, in in the markets in the currency in the global currency markets is something different. And today we will focus on margin trading, speculation and margin trading.
So when people buy cash, and they exchange the counter values, there is no problem with that. When we do it when they do it through margin trading, and most of the people who like to make profit in this market, they do it through margin trading, we'll talk about what is margin accounts and how they are doing it. So they are seeing now it is the largest the most the largest and the most liquid market in the world today. This is what they're saying people who are talking about you know currency markets, and they said describe this market. They said it is a global network of computers, that connects participants from different parts of the world. So, people living in Australia or New
Zealand could buy money from the United States of America or from Europe or from anywhere. So, all these market players are connected through this network of computers. And they said it is established as an over the counter market as opposed to the exchange, you know, market organized
exchanges. So over the counter is when the two participants in the market do a bilateral contract.
And it is they do an agreement between themselves without being restricted by the rules of the organized exchange. So in an organized exchange, people go to a location central location like TSX for example. And the watch the price is going up and down being determined by the market players and then you can buy or sell they make the decision but they do it according or based on the rules of that stock market or
exchange organised exchange. And most of the, you know the transactions are standardized through these markets. And they have actually buyers and sellers have to abide by the rules of the you know, organize exchange. But over the count the counter anything over the counter does not is not restricted by the rules of the no these markets.
So, these are the doesn't have a centralized location. So where traders meet traders they don't meet, they are connected through their computers
played in 2010. In April 2010, they said the daily average turn over was around 4 trillion. So in one day, in April 2010, the daily turn over people traded $4 trillion.
This is how much is
you know, big this this market. And they said this number it was an increase of 20% from 2007 to 2010.
And now it's bigger because we have the BIS, the Bank of International Settlement in Basel in Switzerland. Every three years, they do a report about derivatives and about the progress of this market. And it's a huge the progress in this market is like amazing. So people more people are involved in this market. And they said electronic trading was very useful to the increase of this market, we have what is called
algo algo trading or automated trading. Our goal is algorithmic trading, where we're trading is programmed in the computer. So there are instructions given to the computer. And then when the prices move, then the computer will react without the intervention of any human. So this you know, this electronic trading was very instrumental to the increase of this market. It is open 24 hours, six days a week. So it started in the city of Wellington in New Zealand in the morning, Monday morning, which coincides coincides here with early afternoon in North America and the evening time in Europe. So people start in North America start trading in the early Sunday, early afternoon. And
they stop their trading activities on Friday.
Now, we have to talk about some tools before we talk about these activities, business activities, what are the tools that are used, so in this market currency comes into pairs, they always come there they are always rated into pairs. And the US dollar is always present in the major within the major currency pairs. There are some other pairs that don't include the US dollar, the American dollar they are called cross currency pairs for example, British pound against Swiss franc or Japanese yen. But when all the major currency pairs, all of them include the American dollar.
And the base currency is always the first currency, the counter currency is the second one or is called the secondary currency.
So I will show you some example here. For example, if you look at the example, we have US dollar slash Japanese yen, so the first one is the base, the base currency, which is US dollar, and Japanese yen is the secondary or the counter currency. And this is the quotation, the combination between the two of them give us a quotation in the market. And usually the quotation is like that, we have a bid price and ask price.
they use this term long and short the traders in this market. So they said when a trader buys a currency pair at a certain price and hope to sell it, then he's going up. When he used to, he's going long. When he helps, helps to sell it in the future at a higher price is going long, he's taking a long position, and then when he predicts that the price of the currency will go down, and then
he would sell and hope to buy it back at a lower price. So in the in the first case, he's buying actually the currency and he's going long, the terms could be different with the stock market, we are talking about currency. Now, global currency market is different than the stock a little bit different than stock market or a trading shares in the stock market. So if he sells
His currency, that means he's going short and he's hoping that the currency will go down and he will buy it again with a lower price. And that difference will be his his profit. So, he will they will say they say that he is taking a short position. So a trader will take a long position on a pair, if he buys the base currency, the base is the first one, for example, US dollar we said slash Japanese yen, so the base if he's buying the base, then he's going long, if he's selling the base, he's going short.
These terms are important when it comes to calculating
the profits and loss they call it p&l profit and loss.
So, here we have this quotation for example, this is a Japanese yen 120 point 75. So, this is the buying price. So, if a market maker wants to our participants wants to buy, he would pay this price, if you are actually buying it, you are not selling
then he will charge you the other price which is 120 point 79. So, this ad here, of course, the trader expects the price to go higher to for example, this is an example, we have the price of 120 75 if we expect the price to go higher to 124 point 75, who would buy at this price 120 and then sell it the other price. So here he is taking a long position, just explaining, you know, the what was explained before just giving an example, a clarifying what was explained before. So if a trader expects the price to go down to 120, for example, 70 The difference is only 0.05. And this the number is called PIP, or it's called the point and these movements slight movement make a big
difference in the market. Because when the buy when the buy and sell, they don't buy, they don't trade with 1000 to 2000 Usually, the standard lot is 100,000 American dollar. And some of them some of the traders you know, trade one millions, some banks will trade billions sometimes, but how regular people like us are trading in the market with this huge amount of money we will know about it insha Allah. So they said if he chose with 1 million, he would make 50,000 in the single transaction just because of this different small different 0.05 And that is the PIP
if he trades 1 million in the market, and if you have 10,000 in the market, you can trade with 1 million if your margin is 10,000 your own money, you can trade 1 million
we have these terms and we have to know their meanings and their Sharia rulings pot and forward and futures contracts or markets. So, one currency could be traded in different ways and different trays. So it depends if it is sold on the spot market, then it has a rate specific rate. And if it is sold through a forward contract could have a different rate. And if it is sold in future futures markets, it could have a different rate and a different time specific time of delivery.
Now the spot this is something that we need to pay attention to, because it has an effect on the Sharia ruining the spot exchange rate market was defined as the market for settlement of a foreign exchange transaction within two business days. That is the norm. worldwide. The only exception is between the Canadian and American
market, we can settle the transaction within one day one business day. And that's the only exception. And all the other markets they settled their transactions within two business days. If the transaction takes place on Friday, then it will be four days because they don't work on Sunday and they add Saturday and Sunday and then delivery will take place on Monday then the settlement will take four days to be to be finished to be done.
So this is something important for the any for our Sharia knowledge we need to know this and if it is halal, why it's halal if it is haram why It's haram you know, but this is now the norm in this market index currency markets that what is a spot market. The settlement takes the time of two days any settlement of any transaction does not happen before two business days.
Now forward in future markets, you might be confused with forward might have the same meaning of future right. So, what is the difference between them forward contract is a private agreement between two parties. So, it is an OTC transaction OTC means over the counter transaction, it could be done between two parties to banks to traders to institutions to parties without going through the organized exchange by a futures contract are always administered by the cleaning authorities of exchange futures exchange. So, they have they have some rules, they have some restrictions and they have to be done through these authorities, that is the difference between futures and forward, but
both of them will be executed in the future. But for futures, they have standard times they have transactions for three months, a specific rate for three months and they have transactions that will be the maturity of the maturity date of these transactions are six months
these are in the future market word are not actually subject to these rules, they can do it for one week, they can do it for one month, because it is a private agreement, but both of them will happen in the future. The delivery the possession of the currency will take place is supposed to take place in the future, even though in the future markets delivery is not meant is not actually they have another goal is speculate over the differences of prices and make profit through these differences. And then they can close they have the right to close this contract close their position before the maturity date. But when it comes to a forward contract, no they have to wait both parties, if they
agreed on one month to take you to possess or to deliver the currency after one month then they have to wait for one month and one month is passed and then the execute this transaction. These are differences between food and futures when it comes to Sharia law, Sharia ruling they are not permissible. Why because also Lhasa salami said hand to hand yet and be it.
So the possession of currencies have to take place has to take place within the trading session. So to deliver your currency after one month or two months, is against the instructions of Rasulullah sallallahu Alaihe Salam there are many Hadith in Sahih Muslim in Sahel Buhari many Hadith not one or two said in different ways to emphasize this meaning, the emphasize this meaning in Hadith in Bukhari said a variable with the hub ribbon ILAHA our hub, he said, you know exchanging gold with gold is a usual use transaction except Except when it takes place when it takes place with immediate delivery. How the old ama they said, Ha ha ha it means what what are the hood given take, except
when it happens in this way in this fashion, give and take, then this is not Reba. And why rasool Allah says Allah mentioned gold, because gold was their currency at that time. They used to use golden dinars. And they used to use coins or Durham's made of silver. So gold and silver was their currency or were their currencies at the time. So immediate possession or delivery is the requirement in Halab currency trading. So there is no disagreement between the old ama that forward and futures contracts are, you know, are haram. They're not permissible in Sharia. Now, there is
a bit of controversy about the other one spot spot, you know, tradings but we will talk about it. And this is actually the main activity and many people are involved in it, even Muslim brothers are involved in it. Some of them they tried to justify it, but we'll see how it happens. So, The Economist they said, merging trading involves the borrowing of money, when you open a margin account, that means you are intending to borrow money from a broker, a company financial company, you open an account with him, this is a first step you have to deposit the required margin, which is if you are planning to trade 100,000 which is a standard lot, then you have to F ratio they have
different ratios. If the ratio is 100 to one, then you have the minimum required amount to be deposited, the margin balance, the minimum margin balance is 1000. You
have to put 1000 for every $1 you deposit in this account, you'll be able to control $100. So for 1000, to deposit 1000, you'll be able to control 100,001 lot of 100,000. There are, in other cases, many lots, which are the value of this mean and loads is around 50,000. But what is common is to deal and trade with standard standardized lots, or standard lots which are 100,000.
And you buy and sell through the platform of the broker, so you don't take this money, you don't put it in your pocket, they don't allow you to put it in your pocket. They don't, you'll never see this money, but you see your name on the platform that you have 100,000 And you are trading with 100,000. But if you ask for this money, now, they will not give it to you. So you are allowed to use it for that period of time, when you are trading with this money. Actually, you are not allowed to use it for a different purpose. And you are not allowed to use it in a different time, you are only allowed to use it during that time when you are trading with this money, your name is there on the platform.
And you have 100,000 for example, US dollar and you are trading with it.
And it's up to you, if you you can close it on the same day, open your position in the morning, close it in the evening. If you leave it open till the next day, they will charge you interest. Either they will pay you interest, it depends on your position, they will pay you interest or they will charge you interest. This is overnight interest or it's called roll over. But that's a different issue. We'll talk about it at the end inshallah. So, this is basically the idea of you know, opening your margin account and the requirements are different if it is 1% As I said, the ratio will be 100 for $1 if it is sometimes it is 2% and the ratio will be 50 to one and so on.
So, now, the question is Is the trader required to maintain, you know, the same margin during the you know, the trading session, there are different requirements, some of them some of the brokers, they force you to have to maintain this amount of money, which is 1000 to your margin, if it goes below your the required margin balance, then he has the right to close your position.
Even if you are losing money,
so you don't have complete freedom with too close you can close at any time. But the moment your margin goes below the required margin balance, then he will without your permission. And so markets they will give you they will make what is called margin call, they will give you a notice that you margin balance is going down and you have to put money in the account. If you don't listen that to them within a specific period of time, I don't know how how long, if you don't listen to them and you don't add money to your account, then they will close the account right away. Even if you lose money.
So because he doesn't want to lose money, the broker doesn't want to lose money. It's okay if you lose money but he doesn't want and he's not ready to lose money and he's not willing to lose money. And he's dealing Of course with a market makers big banks who are actually providing this money.
and the the people who actually are familiar with this kind of transactions, they said brokers usually deal with traders as in relation to any transaction as principal to principal so they don't act on your behalf.
You do the decision you make the decision. You open the positions you want and you close them the time you want. In one case as I said if they feel that your margin balance is going down and you are actually you are threatening their money, then they will close the position without without your permission.
And you have to pay the broker you have to pay him fees.
For example, one broker he takes he charges $65 for 1 million. When the customer opens the position for with 1 million you will charge him $65 When you close your position even if you close it on the same day he will charge you another $65 So he will make like one $30 Just by you opening a position and closing your position. 1 million as I said 1 million is not a big number nowadays in this market. Because if you have 10,000 you will be able to trade with 1 million
this is one way some
Have them they have fixed, fixed, you know, fees. And some of them we take their commission through from the spread the spread is the difference between the buying price and the asking price. Like within the buying, as I said, 120 and the asking price 122. So they get their rates from the big banks, and then they add some points to it. And that is the profit if they are not charging fees, and that's why we like to deceive customers and said, We are not charging fees. And we're not you know, dealing in this, but they are making money through spreads through the difference between the asking the buying and the asking price. So they have to make money, there is no way we can do it as
a charity, or as a charitable act of you know, it's not I mean, they're not there to to waste their time they are there to make money to rip you off.
So, they are called custody services. So whether the the charge fees or the make their profit through the spreads, it doesn't make a difference, they are making money through these transactions.
Here we need to pay attention to this this is important in Sharia This is a very important concept combining between a loan and a business transaction. So, this brokers when they offer their custody services, you have to do trading through their platform, they are offering a service and they call them custody services because you open an account through them
for a specific either it is for a specific commission as I said fixed fees or they make profit through spreads they are actually combining with this business transaction there is a sale here and between a loan because they are providing a leverage they are giving you a loan yes it is a restricted loan, but you are able to use this money for a certain period of time when you are trading in the market.
So there are certain there are sort of combination between a business transaction and the loan, this leverage was classified as a loan, okay.
In the same contract, and this is important to our Sharia understanding,
faith now forest trading from an Islamic perspective, what the ruler our ruler might have said about it, what did he said about it? They said well, there is a link between financial leverage and Miss allocation of economic resources. This is the first problem. Second problem is combination between a loan and a trade in one transaction.
The third problem the forbidden to sell what you do not own you do not have you remember if we talked about it before a Salah Salem talk to Hakeem purism he said later beer mela turmeric in a different Hadith later beer Malissa InDeck. So do not sell what you don't own, do not sell what you do not have different Hadith.
So if you don't own something, you cannot sell it.
The remedy said one of the problems is the charging of interest to the margin account if the trader holds an open position overnight. This is the only issue that was solved through the Islamic what is called Islamic Forex accounts. Because we have companies and they are actually run or owned by non Muslims, non Muslim companies, they are not established by Muslims. But Lee because they believe that interest is the increase is the charging of this rate
for your borrowed money or your principal. So they were able to get rid of this. This is the only issue that was solved. Because they don't know about the combination between loan and business transaction in one contract. We don't know and we because you know this could we don't know about the rule that says could look out in giraffe and for Horiba any loan that generated a benefit is a kind of Riba. It's an act of Riba. So they don't know about these things. But the the end their understanding interest is the amount or the amount of money that you charge over the principal or the money that was borrowed. So the dealt with this issue. They said for Muslim traders, Muslim
traders, we are not going if you leave your opposition open till the next day, or for three days or four days. They are not going to pay you interest and they don't charge you interest.
But we couldn't solve the other problem. For example, the deal
late delivery of profit first two days or the biggest problem, no physical delivery
over the counter values of this transaction when the transaction takes place, there is no physical delivery.
So Miss allocation what do we mean by misallocation of misallocation of resources?
There are only Merced Muslim economist.
Experts in Islamic finance, they have a big problem with this concept of MIS allocation of resources. Why? Because there is a great deal of oppression here home that is taking place. Now, for example, we talked about the 4 trillion now it could be 6 trillion or 7 trillion Allah and the report of this Bank of International Settlements will appear this month or next month. And we will know about the increase that took place between 2010 and 2013. We will know about it this month or next month. But now we are dealing with the numbers that we got from 2010.
So talking about $40 million,
traded in one day, they said it is the value of Germany's total output for one year. And the total output of a country is the quantity of goods and services produced in one year by that country by Germany, which is a powerful European country for one year $4 trillion.
So, this 14 $14 was traded in one day, they said in 2010. This is an empirical study that was done by some experts, they said only $533 billion of US dollar were traded by non financial customers, what do we mean by non financial customers, those who deal with real economy like governments buying things from another country, and then importing this stuff, these goods and we pay them money or a company importing some goods from another country, and then they had to exchange money and then pay them with their currency. So, when they do it currency exchange for this purpose, they do it for real economic activities. And this is accepted by all people there are any Muslims and non Muslims
feel comfortable with this, because it is done for a purpose a good purpose. People are benefiting from these products from these goods, these companies are adding some value to the economy.
Now this $14 That was traded, it was was changing hands, no jobs were created, no companies were financed, no, nothing was enhanced or developed. And when it comes to real economy, so it's money changing hands from one hand to another hand, from one bank to another bank, there is nothing nothing no benefit human the human actually society has not benefited in any way.
So the role of our owner, my saying this is a huge misallocation of resources. Why? Because they said this money is coming from banks, right?
And whose money is this?
it will also be public, it's your money, my money, the money of everyone. If it was not for our money, these banks will not collect this money will not have these billions to play with.
So our rules are saying This money belongs to the society. And it should be used to serve the needs of societies.
But it is serving now the needs of whom the speculators and traders like methane. Have you heard of George Soros?
He was a it's a big speculator who had played an important role in two crisis, financial crisis, one that took place in 1992 in Europe, and he was called The Man Who broke the Bank of England, because he made in one day 101 $1 billion in one day against the British government.
In 1997, in the Asian Asian crisis, we were that included Malaysia and Thailand and South Korea and some countries Indonesia. He played an important role in this financial crisis. We know that these financial crisis had different other roots. They had different causes. They have some underlying roots in the economy in the economy itself.
With the problem that's why we have a debate in the in the western here, circles, saying
The speculators did the really hard these economies? Did they play a role in doing some damage to these economies, or they just took the opportunity from the market and they make their profits.
But the problem is, you know, when you see someone is dying or suffering,
is it accepted morally or Islamically? Or even I mean, for non Muslims, who do not believe in the deen of Allah subhana wa is it accepted that you go and you hit him more, if you see method and the economy, the whole economy for country suffering,
and being destroyed because of their own problems, then you pull out your money from the market, and you let their currency go down and you add fuel to the fire.
So is it morally accepted for them it is
in the capital, you know, system it is accepted. And that's why we had this debate between Mahathir Mohamad, the Prime Minister of Malaysia at the time, who was talking against them, attacking the speculators, and yo Soros was making fun of him was laughing and said, you live in the 20/20 century and and this is an open this is globalization. And this is the these are the rules of you know, open market or free market, these are the rules of free market.
And the they did actually a big damage to these economies of these countries. Who Allah, Allah Allah.
and our Roma also they said, without the efficient use of savings, savings, we talk about our money, the money of people, the public money that is deposited in the banks, he said with without the efficient use of this money, then there will be no just monetary system. And that's why you know, all countries nowadays, suffering from a crisis to another crisis from a crisis to another crisis. Allah animate will come, what will happen the future nurse Allah subhanaw taala Salam o Allah here.
The second problem combination between a loan and a trade in one transaction Rasulillah Salam made it clear, he said lay a halo cellphone werebear lay a halo cellphone werebear and Hadith sahih. So he said the condition of a loan combined with a sale is not lawful.
And here, these brokers are combining between a sale the sale their services, and they are receiving compensation, they are receiving money, a price for the services, and at the same time they are giving a loan. But would they give you a loan if you decide to trade with another company? No.
It is a conditional stipulation that you have to trade through them through this platform. Otherwise, they don't, they won't give you this loan this leverage. Because if you trade with your own money, 1000 or 10,000, you don't make money. You make $5 or $10. In a transaction, people are not looking for this numbers. The minimum number they are looking for in any transaction is 200 300 400. And if you do it for a couple of days, in the same day, they might make some money. But they said 95 person to people who are trading in this market of losing money. I'm talking about retail traders. I'm not talking about big banks, big banks, they have their rules. They know the
rules of the market. They know this the secret of this of this market, and they are able they are able to protect themselves against the market movements. But I'm talking about retail traders, you and I, people who don't have experience, people are saying that 95% of these traders are losing in the market. And they come and tell you how can you become one of those 5% who are making money. But we have Sharia problems before we talk about that.
So now Rasul Allah is SLM when he said we shouldn't forbid we shouldn't combine between a sale and a loan at the same time in one transaction. He is looking forward for transparency in business leading and business dealings transparency, because when you give a loan
are you expecting a reward for this loan? How about if the other person does not do business with you? Do you still give him a loan or not?
Usually they don't.
So there is a price for this loan. So there is no transparency you call it a loan but it is in itself a transaction because you are making some profits through this loan.
The forbidden is to sell what one does not own. So the owner Maddie said ownership in Islam grants you the total freedom total freedom to deal with the own
items in all legal ways, legal ways.
So you are free to do this is the definition of ownership when you own something, you have the freedom to dispose of it, to sell it to keep it to give it as a donation, do whatever you want as long as your transaction is valid in all legal ways. Now here in this, in this arrangement, you don't own this money is not in your hand is not in your pocket. You are only as I said, only allowed to use it to trade with it during that period of time, for that day when you are trading with this money, so you don't own it and it's not your money. It's just a number in front of you in the computer. And that's why our Salah Salem, here we have this hadith here. He said do not sell what
you do not have in a different Hadith, he said lamb mela Timberlake do not sell what you do not own
no physical delivery of both counter values of the transaction. So if Mr X sold, for example 100,000 US dollar for 120 4000 to Japanese yen for example.
So when he sells his money, he's going shorts now, he's hoping that the price will go down and buy it again and make a profit through the difference. So, he opened a trading position, when he opens his trading position he does not there is no physical delivery, he does not give the 100,000 and he does not receive the 120 4000 Japanese yen there is no physical delivery at all. And so Allah Selim these are the conditions of sort of the sales of service that you have to give and take ILAHA will have to give your your money received the other money the counter value from the other person
and of course if you want to make money as I said you reverse a transaction you have to buy the other 100,000 if the price goes down, usually when they go short position they expect the price to go down and then they make the buy it again
the delay delivery of the profit for two days. This is a famous Hadith in Sahih Muslim that there are many a hadith with the same meaning as Buhari said Buhari is full of this hadith in the book of river book of transactions and this is one of them gold for gold silver for silver he's talking about currencies now. There are many said you know these transactions are usually is when it comes to gold and silver because they are there a lot. They are a medium of exchange. It's called an Arabic FM Enya. And that's why the older man he said paper money, the good rules of riba apply to the paper money because paper money is a medium of exchange nowadays. So, it has the same end this
is called Ts in Sharia analogy using the same Allah to deduct and apply the same ruling that was applied to the original item. So, here he said wheat for wheat barley for barley dates for dates and sold for So, should we exchange like for like equal for equal and hand to hand. So, hand to hand is a very powerful statement, hand to hand give and take, it has to take place in the same trading position.
And this is in Sahih Muslim as I said, there are many a hadith with this with this meaning.
So, the owner, they deducted these rules and they are very strict about them, they said in the sale of serf delivery of both currencies must take place within the trading session, magically select and the expression of hand to hand does not leave any other room for any other interpretation. Because there are some people Muslims who accepted the terms of two days, the settlement of these transactions within these two days because they said this is a lot of this is a lot of today's transactions, a lot of means custom, also tradition customary practices. But this is I don't know why they said this. But we know as a fact in our Sharia that a customary practice is accepted as
long as it does not go against the text divine text.
It is accepted as long as it is in line with the guidelines of Sharia.
So here, this earth is modern out of settling these transactions within two days clearly goes against instruction of Rasul Allah says in them in this hadith when he said, when you exchange money, you have to do it hand to hand, giving free access. We talked about it before to the other party to possess or take his property or his money is also accepted in Sharia as a constructive possession. Suddenly, you do a transaction with the bank
And instead of giving you the counter value in your hand, he will put it in your account. Why is it halal? Why is it accepted, because you have free access to your account, if you go to the bank machine right away on the spot to take your money, you will be able to take it. So this is a real possession, you have the ability to possess your money. So this is called an Arabic a couple of alchemy, or constructive possession, and it is accepted in Sharia, in this case, currency markets, you don't have this money, you don't take it within these two days, you don't have access to it. Actually, you don't, as I said, you don't take the counter value, you take only the difference, the
profit is transferred to your account to your margin account. Okay, within after two days. So before two days, you cannot we don't have access to this prophet. So it is not hand to hand and you don't have free access. So it is not a real possession. And it is not a constructive possession.
Before I close this halacha we still have like 15 minutes we'll have to go in sha Allah, I will give you a chance to ask question if you have questions. Before, I would like to say something something very important. We need to we need to keep it in mind nowadays.
Some of us are many of us, including myself, I feel sometimes that we have no room. We have no opportunities, we don't have alternatives in this market nowadays. Everything are many things, I shouldn't say everything many things are many business transactions, many, you know
are are haram for us. They are mixed with riba they are they are not permissible in Sharia. And we feel that we are restricted and we don't have this freedom to make money.
And some of us might feel sometimes that our aroma, or in love with the word Haram
is I heard someone who was teaching this class about this. It was not to add him. He was a businessman. He has a company and he invited people to come and learn about this new market so they can trade through his company and make money and he was trying to refute these photographers. These photos were made by an attacker Smarty is a famous scholar in Pakistan from Pakistan. well respected scholar, Sami Swayam. Professor selling Sam is Whelan from Jeddah. He's an expert in Islamic finance. He was trained as a Sharia law scholar and trained also in the American
he lived in the United States of America and he studied the Western financial system and he writes in both in Arabic and English, and his books in English and his research in English is well written is well written. I mean, it's Masha Allah, and he's in expertise and authority. Now he works with IDB Islamic Development Bank, we have a Dr. Yousef Abdullah Shu Bailey, he's in another expert in Islamic finance.
Dr. Muhammad low salary and other experts in Islamic finance. Many of them the data, in fact, we're in Jordan, many of them, I've done some research about this market. And all of them, you know, made this fatwa that it is not permissible for Muslims to be involved in this kind of activities. Now, when we make this statement, and we say It's haram, as I said, we have always this feeling that as Muslims nowadays, we don't have many opportunities and everything is we feel depressed, sometimes.
We need to know something we need to I am sure that everyone knows about it, but we just need to be reminded about it that this system was not designed based on the guidelines of Allah Subhana Allah and His Messenger
this system will live in an environment that is not friendly to our bulls.
Either, I mean, even if you live in a Muslim country, and this Muslim country is not applying Sharia, okay, so you will find this problem, you face these problems, you will face these challenges. So nowadays, I'm not saying it's, we're not supposed to make money, actually, it's good to make money is good to establish a business. But the only thing is you need to do your homework as a Muslim and try to do it in a halal way.
We need to go method instead of doing these activities we need to go to the real, real economic activities establishing coming together doing some businesses together or
or you know buying and selling things goods and export import anything that is halal
that is halal.
You know, the rules have sort of are very strict when it comes to trading in stock market, there are some concessions. There is some room to you know operate in this in this Western, within this Western environment you can buy through, you know, some photographers based on the Fed hours of some scholars is not like this, but this one is very strict. There is zero tolerance for Riba in Islam.
And those Ahadi that mentioned hand to hand are as I said, there are many in there found in Sahih Bukhari and Muslim world collected well documented, there is no way you can go against them. And there are some scholars who try sometimes to make it easy to Muslims. They sympathize with Muslims nowadays. We cannot want to sympathize sympathize with your brothers and sisters. You cannot make what is haram halal. You cannot change the deen philosophy Anoeta if there is room for live there is room for making something halal. We will do it. I mean, if there is a way we love to make money, live will love to buy houses we will like we love to, you know to be wealthy. And this is our
nature, right? If someone said I says I hate money. I mean that's he has a problem. This is a psychological problem. Everyone loves money, and loves to make more money. This is our nature as humans. And if we make money in a halal way is good as long as we make sure because sometimes good money could be good to you. It could be it could be a blessing. It could be a trial could be a fitna to someone, right. So someone sometimes it could be good for a person to be poor. To have limited means, you know of limited means, because on the Day of Judgment, he will be in the safe side. But it's not this is not an excuse to hate money or say no. If someone is you know involved in the
market and making money, we we have we labeled him as someone who is running after duniya someone who is in love with dunya. Now, this is not the case, we know the case, the stories of Earth man of no fan or the Allahu Anhu after a man who was a wealthy Sahabi many Sahabas were wealthy, extremely wealthy, but they used to do pmla They used to recite Quran every night, they were able to make a balance between their material life and their spiritual life. If we can do that, then that is beautiful. And this is what we want. But I don't want anyone to be depressed when we hear the word haram about those business activities. Because we live in a different environment in a system that
was not designed with Allah subhanaw taala in mind, or with Sharia his Sharia in mind. It was designed for other people for a different purpose within a different environment. That's why it will be difficult for a practicing Muslim to live in this environment. It is a kind of that you stay away from haram and you stay away from this and he tried to find your way in between you tried to find your way in between and make a halal income a halal earning, it is not easy. I know it is not easy. But is that is your homework that is your measure whether you do it for the sake of Allah subhanaw taala to please Allah subhanaw taala to be in the safe side to feed your wife and your children with
Halal income. She's come along fade and if you have some questions, we can inshallah further trying to get a better understanding of the moving with where you cannot combine alone.
So for example, if someone were to buy a car for $5,000, but they didn't have the 5000 At that moment in time, it's not permissible for me to give them the car and tell them they can pay.
No, no, that's not the case, the brother is saying combining
between is asking about combining between a loan and sale transaction. If I want to sell a car to someone on a deferred basis, like it will pay me within like one month or two months or one year will. This is not the case because this the price here is different is the same transaction. There is no combination of two transactions. It's only one transaction, but the counter values of the transaction is the car in one side and the five times in one side. So if the payment is delayed, it's halal. There is no problem with that. Even if you increase the price it's halal as long as it is fixed. And you are not going to increase it again if he is late in his payment. So if you tell
him we pay me within one year I'll sell it
For you to you, I'll say to you for 6000. But if pay me cash, sell it to you for 5000 that this is halal. And a deferred payment is halal, too, because it's only one transaction, you are not adding another transaction. You're not telling him, I'll sell you this car, but please, I need a loan, give me a loan 1000 on the site, different transaction?
I guarantee that would lend them to 5000 only as the buyers my vehicle.
If I'm restricting which Yeah, but what is the price of the vehicle? Well, I'm just saying for like a 5000. Yeah, if you say with a you, yeah, you want to buy my car, I'm willing to sell it to you, but I need a loan from you.
This is clear combination between the loan and the transaction, because alone, someone wanted to borrow $5,000 From me to buy a car and I said, I'll do that by my own car, then it becomes
you bought, but that's the distinction.
You're confusing me here. The 5000 is the price for the car, right? No, I'm saying. So the flip side of that the only way it becomes cut off, is if someone said to me, I'm looking to buy a vehicle, can I borrow 5000. And I said, I will give you 5000 Only if you buy my vehicle, then that becomes cut off? Because I'm restricting what he can do with that. So it's a completely different I'm selling you my car only if he I borrow from you. 5000? No, it's completely different scenario than the first one. No, no way that becomes
if you make it a condition, you add another loan as a conditional stipulation, you add it to the transaction,
but not in the same transaction.
You say, I want to borrow $5 from you because I want to buy a car, then you will tell me, I'll give you the loan $5,000 If you buy my car,
then it becomes but it will end up like a deferred payment like a sale with a deferred payment. What if the car was worth 4000? So you give him 5000? And then you sell him your car.
And then you take 5000 back? different scenario. That's why I'm confused the rent
The scenario is someone approaches me for 5000 to buy a vehicle. I said the only way I'll give you 5000 is if you buy this vehicle, which is my Oh, then I'm putting a restriction on that. Yeah, you are benefiting from your loan. Yeah.
This is what is haram. When you benefit from your loan. I'll give you a loan and it is not it doesn't become a charitable anymore because you are benefiting from it. I don't give you this loan unless you buy from me. You can and then it depends on the price of the car will be different it will pay you based on the terms of the your sale. Yeah, that's Yeah, that's right. Yeah.
If you take a loan from someone, and you when you pay him, you pay him with some extra money or you do a favor for him without an agreement is hella
like method and someone gives you a loan for 1000 And then when you turn this loan, this money after one month 1000 You give him one kg of apples for example, or or a book as a gift.
Because he was nice, he was kind to us. So he gave you a loan. This is halal, because the other party did not make it a condition he did not ask for this gift.
But if it is a condition made in the contract, then it becomes harder.
loans are supposed to be beneficent act or charity act of charity. So you cannot ask for any favor or any compensation.
You do not you don't make it a condition. But if it is given voluntarily from the other party for the first party to the second party, then it is halal it is accepted.
I do not understand how that
works. Because you don't
own the money. You don't own it.
You own the money. This loan that is given to you this leverage that is given to you by the broker. Do you own it?
Yeah, but they lent it to you for that period of time when you are trading. You don't have freedom. You don't have access to this money. You don't have freedom to deal with it if you want to take it and deal with it. Like trade it in a different market or buy a car with it or buy a house with it. You can't you don't have the freedom to use it. You don't own it.
So they didn't
it is a law
That is that is really restricted.
It is a loan, that you can use it like a credit allowance that you can use for that period of time when you are trading.
That's it. Other than that, you have no access to it, even when you are trading, you cannot take it and put it in your pocket. You're changing with numbers on the platform
you know what I'll tell you, I'll tell you clarify this issue for us. Allah sesamum said that a bit melodramatic, do not sell what you do not own. Because if you don't own something, you don't have it, and you sell it, there is a horror, there is uncertainty, you're not sure if you're gonna, you will be able to deliver
the sold item or not. Because you don't have it, you are hoping to get it in the future and then make the delivery, right. Give it to the other person. But there is a great deal of horror horror, we talked about it and certainty. I don't know if we talked about it in detail. But it is a high level of uncertainty here. Because you're hoping to get this item in the future and but it could
you might face some problems or hardship in getting this item and then you want to be able to deliver this, the delivery is not certain there uncertainty about the delivery.
For example, I needed to pay the rent or something and pay some bills.
Know you take a loan, you own it. Now, when you take 5000 from Muhammad, your name is Muhammad. From Muhammad, you have it in your hand.
And this loan gives you the power to use it. That's why you guarantee the loan. In loans, we guarantee the money. Okay, we are responsible if something happens to it, you have to pay it back. It's not like a woody out there. It's not like a trust Amana.
When someone gives you a trust where the idea is not a few faulty you don't have to pay it back. Because it was an Amana and you are a trustee. But when you take a loan, no, you have the freedom to use this loan. It's your money. Now, the only thing is that you have to pay it back to him. But in this case, you don't own it. You don't have it in your hand, you don't have free access to it. It's a weird situation. Yeah, they're coming with new things coming up with new things all the time. Actually, if you go deeper into this market, and you study other other products, you will be amazed you will be actually confused. What's going on here. And they're making big money and creating
Not only for
the stocks, yeah. Short selling, for example, in short selling, you don't own the shares. You just borrow them, but you don't have them. You don't own them, pull them for fees, and then you trade them. And it depends how you know what happened in the market and make money you don't make money.
on delivery? I mean, you don't have to buy in Yes, margin, there are margin accounts in the stock market too. And they have their own problems too. Yeah. The same condition is almost the same concept when it comes to a stock market with margin accounts. But if you share trades, you own tray shares. Yeah, something else. And you trade them in a regular way without any you know, use of derivatives or options or futures or anything, then your income should be halal and sha Allah.
And it depends on which company you are trading or we're dealing with. So another issue another subject? Yes.
So far, you've been talking, I don't know if you mentioned about
if you're a small,
small investor investor, you're not dealing with that broker or anything. You're just speculating, for example, you have $100. And you change the power of any change you do to reach out and then you do
you have the money in your hand, go to the bank, you buy another currency, and then you wait for the price to change. And then you sell it again, this is valid. Yeah, because you're doing it on the spot. You're giving money taking out the money, put it in your pocket, and then wait for a couple of days. But you don't make big monies. You don't make big money if with with these kind of transactions. You need like a big amount of money. You need to be wealthy to make money in this
in this way. And just one more comment a few months ago when they had the financial crisis. I don't know that was last year or something. I think the EU actually forbid one of these trades like future trading.
actually committed to short selling the Germany. Yeah, they are forbidden short selling in the in the summer of last year. Yeah, believe it
You always default with them for a while, and then they come back and use them again, because they don't have an alternative and they're not satisfied with our products to our we're not giving we need, we have a long way to go to compete with, with their markets and their products too. So they don't have an alternative, there's only way they do money and,
and there are many parties mixed with politics too, because these big banks, investment banks are owned with people who have power in the society. And they are actually especially investment banks, many of them are, you know, helping some presidents and politicians to win their vote elections and, you know, funding their elections. campaigns. And it's, it's not a it's a very complicated issue. And that's why some politicians when they go when the they have power, these support these people, even though deep down, they know that they are creating a big mess in the market. But we have to support them because they are the ones who are funding them and funding their election campaigns.
And so it's a big subject.
So it's not the market is not clean.
just the insurance from the Brian, Brian, Brian's giving me leverage, like a $1.30. So is it
to buy the biosphere and is the dividend is around
buying shares from your own company?
It depends, I mean, the owner, Maddy said, there are two conditions, this is something there are two two cases the first case where the product of the company is halal or the services given by the company or halal and also the company does not deal with river does not have a credit line does not you know, and this is something really difficult to find nowadays, there are some companies who are trying to purify their transactions in the Gulf area and Saudi Arabia and Qatar and some not, not a big number of them, but some of them are really moving towards this direction, right.
So their own AMA, they said this is something that is agreed upon if the product is halal. And the company does not deal with riba then their shares are halal to trade. It is okay. It is halal for you to trade with their shares, buy and sell in the market as long as you buy and sell in a regular way, and you don't go into options or futures or the other, you know, so, so this is the first case the second case, which is here, which is common here in the West,
where companies some companies have Halal products with Halal products like oil and gas and good. But the problem is all of them we know for a fact that all of them deal with a river to deal with river. So there are some fatalities it's a great area to me is that the first case is a pure halal, I'm trying in sha Allah to trying to classify the transactions in the future if I can to pure halal and halal transactions, strictly Halal haram transactions, and what are the ones that are in between in the gray area in the gray zone. And this one is in the gray zone, because there are some respected scholars who said that if the product is halal, and then you know, you are aware of the
ratio of the interest in the income of the company, she's kind of difficult but for accountants maybe it's easy to detect, they go to study the you know, financial statements for the companies and they can maybe get the ratio of the, or the interest income, how much interest is involved in this in the capital of this company. They said if you know how much then if you it's better not to trade the shares of this company. Now it's better. But he said if you do it, if you decide to do it, then if you know how much interest is involved, then after you make a profit, let's say within a 5% of the income of this company is coming from interest, then you get rid of five person to fuel a fuel
profit, not the capital your profit. But if you don't know then you get rid after we make a profit. Let's say you made 1000 profit they said you get rid of 50% of your profit to purify your income.
And some of them they said No It's haram since these companies are dealing with river then It's haram. So to me it is a mess Allah a matter which is in a gray area in the gray zone. If you want to do it, it's out
Up to you it's a personal choice if you want to stay with it, stay away from it then it's up to you to the choice is yours. But there are some earlier but they are a minority by the way, they are minority and this is an area that is you know,
it's it's a schubertian superhet But it's not strictly haram. My main opinion of someone whenever it is strictly haram, but some Rhoda Maddy said as long as you are willing to purify your income and you do it in the proper way. It could be fine but they prefer that you don't get involved in it. This is their fatwa. This is the way they put their foot towers, based on their studies were allowed to Allah. They've just come along Hayden's Hanukkah Loma Hermenegildo Elijah and learned the stuff it'll go on to week