Ask Shaykh YQ #64

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Yasir Qadhi

Channel: Yasir Qadhi

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Episode Notes

FOREX and Currency Trading. In a fast-moving world like today, some of us are often looking for alternative ways to make money. One of the things many people do is FOREX trading, which is when different currencies are traded with the goal of making a profit. Is this something that is permissible in Islam?

Episode Transcript

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What is the ruling on currency exchange and on what is called forex forex trading. So, what is the ruling on currency exchange and forex trading?

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In

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New e he him first.

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So we begin by stating that the exchange of currencies in and of themselves is of course, something that is allowed by unanimous consensus and by explicit explicit traditions of the prophets of the law while he was setting them and the famous hadith of them in a solid reported in Sahih Muslim, our Prophet sallallahu I sent him said that he will be happy what field builder will fit but he will be rude.

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Well badru bill Baroni well milho bill made here than we had in Sabah and bisola from anxiety always desire difficulty our bar. So our Prophet sallallahu Sallam said that exchanging gold for gold and exchanging silver for silver and exchanging wheat for wheat and barley for barley, and in one version salt for salt in one version date for dates, as long as it is done yet then be at the end and B it means we do the transaction right then in there, one hand gives the other hand takes. So a and b so up, it is done with the exact same amount between the two. So if I give you 10 grams of gold, you need to give me back 10 grams of gold. If I give you 20 grams of silver, you need to give

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me 20 grams of silver, if I give you one kilo or one pound of dates, you need to give me back one kilo or one pound of dates. So it must be done yet and bn Silva and B Silva two conditions are done spot transaction and the same quantity from anxiety always desire difficulty out of whoever increases or demands and increase has indeed fallen into Riba or interest, I cannot give you $10 and then say give me back 11 I cannot do that. And also, I cannot do less as well. So basically any or you cannot demand more or less from the amount if it is the same currency or the same item mentioned in this idea of gold, silver, wheat or barley dates, and salt however, then our Prophet sallallahu I

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said him said he had the head and work for beer, okay, for sure from either Canada yet. And yet, if you are trading and transacting in between these commodities, then go ahead and buy and sell however the proportions are as long as it is done spot transaction yet and be at right then and there. In other words, if I'm going to give you gold, and you're going to hand me back barley, obviously, I'm not going to give you 10 grams of gold, and you're going to give me 10 grams of barley On the contrary, you know 10 grams of gold is going to give me many many many tonnes maybe even no barley. So in the prophets are some explicitly said if you are buying and selling between different of these

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commodities, then the exchange rate between them, it is permissible to however you guys decide. But there is one condition that is very explicit, and that is in the Hadith in Sahih Muslim, if that kind of yet. And yet if it is done at the same timeframe, therefore currency exchanges falls under this Hadeeth. And you are allowed to exchange dollars for pounds, you're allowed to exchange Canadian dollars for American dollars, you're allowed to exchange yen, you know, for the Euro, however you want to do that, with whatever the two parties agree to, and it is up to you, you can it's not necessary for you to take what is written on a website with the exchange rate it is up to

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you and the buyer or the seller, whoever if they agree to more or less that's between you and the laws of the land that you live in. I'm not saying that be illegal, but I'm saying if some countries allow it, that you don't have to follow the official rates, it is permissible for you to charge more or less than the other person should know that this is the rate and this is what I'm charging you and it's up to them if they want to take it or not. But one condition the ownership needs to be transferred right then and there. You cannot delay that I'm going to give you 100 today and then you give me back $100 then you give me back the equivalent in pounds a month from now, whatever that

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equivalent is no it needs to be done right then and there. So, if I give you $100 you need to give me back the British pounds right then and there the transfer of ownership needs to be spot transaction, there is no rebar, if the currencies are different and the amounts are different, only if the currency is the same and the amounts are different. If I give you dollars and you give me back more or less of the same US dollars, then rebar will occur if I give you different currency and you give me if I give you one currency you give me a different currency there is no What about I hope that is clear. Now Can this be done with the intention of profit? Yes, why not? There is no How

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do I do that?

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is no sin on wanting to make this into a profit that if you feel, for example, that the Japanese, you know, yen is going to increase in value in 10 months, whatever, and you say, you know what I'm gonna, you know, store some of my money in the Japanese currency. And so you exchange $10,000 into a yen, and then you have it, it is in your hand or you own it somehow. I mean, it doesn't have to be physically banknotes, but you own it, you have an ownership of course, means you have full rights to do as you please if you wanted to transfer it into dollars or transplanted into Chinese currency or transfer it into lira whatever ownership means you have any what is called an Arabic end mill key

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and how to solve that you have the right to spend as you please, as long as you are the owner, then you may change from one currency to another. And if you think that you're going to make a profit out of it, then it is inherently permissible, there is no sin in it. And again, the issue comes only of full ownership now, and that's currency exchange. Now, as for forex, and for those of you those of you that don't know, forex is short for foreign exchange, forex is not the same as an individual currency x transaction between v and u. That's not the same forex is a massive multi trillion dollar industry. And you know, forex trading, I don't want to go into obviously, and by the way, I've said

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this many times before that you should realize all people who study Islam they have their speciality is they have their strengths and their weaknesses, and as a member of the hotdogs And may Allah have mercy on the one who knows his own weaknesses and deficiencies, and I have no problem publicly stating, I've said this many times, that when it comes to modern Islamic Finance, I do not view myself as a specialist and expert, I am a minor student of knowledge, who will tell you what the major council state say, if you disagree with what I'm about to say, take it up with those councils, I definitely am qualified to go back and coach you with the council say and understand what they're

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saying, I have studied Islamic finance to a level that I'm comfortable where I am, but I personally don't have the desire, everybody has their desire, I'm much more interested in theology and in aspects of fear. And in Sierra and in history of this, you know, everybody has different so that's the and by the way, you should also know every single scholar is like this, just like a doctor is not a specialist in all fields of medicine. There is no Adam in the world that is a global specialist in every single field of Islamic sciences. It just doesn't exist doesn't happen. Just like there's no doctor that is a cutting edge specialist in every single field of medicine. And so

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you as the questioner and also my advice to the students of knowledge and their own ama out there as well should you know humble themselves or know what their own areas are. inshallah Allah will bless you in this regard. A famous incident of human mighty comes to mind when somebody came to from under us with a long series of questions, they see over 30 questions, and perhaps for half or maybe a third of them. Mr. modic said, I don't know this answer. I don't have the answer to this. And this is Mr. Malik. So the man said that Oh, Mr. Malik, I have come to you from underdose the other side of the world, and I'm going to go back What do you want me to tell my people when this is the answer

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you gave me my mighty calmly said you will go back to people and you will tell them hey, my Malik said he doesn't know this is the sign of a real Adam, Allah Georgia Nickerson that track of mindframe. So like I said, I never ever feel myself qualified to go independent in Islamic finance. I am merely a reader and an observer and a quarter I will quote you with the roadmap have said so forex trading it is a massive multi trillion dollar industry. And forex trading is when people buy and sell currencies, with the aim to make money on the difference between the two currencies. Now, if it is done individually, as we said, with the previous conditions, it is allowed. But the problem

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with the Forex is that a number of things happens and of them is that of course there's an immense amount of speculation they're going to buy currency a against currency beat in the belief that the price of a will increase against B after some time. And if the currency does increase, then have they made a profit, and they're going to close the trade with the game. However, if the currency does decreases in value, the trader will incur a loss that in and of itself is permissible. The issue comes that forex is a platform and the person who's getting involved is not the sole owner, rather, they're getting involved with a much larger contract and you're trading it as an OTC over

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the counter transaction. And this means that you speculate on the movement of currencies against each other but you do not actually take physical ownership of the asset you do not have milkier you do not have have caught the server. You are only a silent observer, you hand it over and then if there is a profit you will take if there is a loss you will take and also there is the added issue of leverage that you are not the sole person rather you will go through a broker and other people will go through that broker and you will be lent and imaginary and started measuring no matter what you say. You will be lent an amount on paper.

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Then your resource will be pooled together. And then based upon that, there is going to be a speculative loss or a profit. And, as far as I'm aware, all of the councils that have looked into forex in detail, all of them have said that forex is not allowed. And this is the position of the magic magical Islamic, which is one of the largest and most respected councils. It is the position of data left of Egypt. It is the position of the Council of Islamic Council of Malaysia, of Saudi Arabia of Kuwait, also moved to Turkey Earth mining, one of the leading contemporary Islamic finance experts also gives a fatwa that it is impermissible. And if you read their Fatah was very clear,

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there are a number of issues that are brought up and one of them would, which would invalidate the contract, but a number of them are very clear of them and no particular order of them. As we said, and I already alluded to this, there is no actual ownership and our profits of the law who I said I'm explicitly said, when you're going to buy and sell between these different you know, currencies, it has to be yet and be yet and our Prophet sallallahu wasallam said that, we are merely saying that do not sell what you do not own. And what happens in these forex markets is that you are essentially buying and selling that which you do not own you do not have actual ownership and what is in what is

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being brought to sold and that is the amount of currency. Also another major issue is the issue of leverage, you are getting a loan in return for a profit, you are getting into a dual contract, one of which is a loan, and the other which is the potential for buying for a profit or loss based upon that loan. And there is an explicit Hadith that you cannot combine a loan with a transaction when this is why in our study, and this is a very important part, one of the fundamental differences between Islamic Finance and Western capitalism understand this point, whether you like finance, and by the way, I don't like finance. But anyway, whether you like finance or not, you know, minds are

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different. I have never been interested in, you know, the the financial issues, it's just something that doesn't, it doesn't really concern me that much at hamdulillah. But anyway, people are different. Some people love it, one thing you will definitely understand, in Islam, giving a loan is not a business, it is an act of charity. When you give a loan, you give a loan, because you expect a law to reward you our profits of the law, while you send them said that whoever gives a loan for the sake of Allah Subhana with Allah, Allah will give him 50% of it as a charity. So panela if you help your Muslim brother out by $10,000 loan, you get it back, guess what, Allah will reward you $5,000

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South Africa and you get the money back Subhana Allah, can you imagine you are getting the charity of 50% and you get to keep the money. Giving a loan is an act of compassion in Islam. It's an act of charity in Islam, it is not discussed in the book of financial transactions is not discussed in the book of Prophet in the book of businesses get Abu you're giving a loan is an act of sadhaka. As for the western capitalist system, loans are an intrinsic Institute in of itself to gain a profit. And it is not allowed in our shediac to gain a profit off of a loan could look harder than German fat. And for horiba. Every single This is a principle in Islamic law. And it is a Hadith of the Prophet

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sallallahu wasallam every single loan that generates a profit, every loan that will guarantee you a profit, it is Riba however you look at it, if you give a loan, and you are guaranteed to make a profit or a high probability of making a profit off of that load, and by high I mean, like reasonably, you're going to make one, then you are in shortly. And you are basically getting into this issue of transforming a loan from an act of worship and sadhaka into a business transaction. Now back to our forex here, and that is that in the Forex model, what happens is your amount is leveraged. And on paper, you're getting a much larger amount as a loan, but you don't get it's not

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in your pocket anyway. And that loan is then going to be used leverage by the amount that you've given. And then based upon that, the broker, the middleman, the Forex company is then going to speculate and make a massive profit, hopefully, or maybe you lost whatever the case might be. And so the concept of you getting a loan, and then using that loan for the sake of speculative profit, so therefore you have you're combining between the loan and the profit transaction. This is also a very problematic issue, which of course, is another reason why our scholars have said forex is not allowed. And one of the Federal Council, the National Federal Council of Malaysia, they state in

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their first one I quote, a study by the committee found that such trading involves currency speculation, which contradicts Islamic law. This is a point to be added a law knows best. It's probably not the strongest point of speculation, but it is there because the problem comes an element of speculation in and of itself does not make something How long? we speculate when it comes to stocks, for example, and anyway, it depends on the level and the quantity and whatnot. And so there

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is a technical issue, they're the most detailed footwear that I read, you know, in my research was the gift of Egypt, the official photo agency of Egypt they have a 10 page photo in which they went in Arabic unfortunately, I don't know anything in English that is that much detail in which they did a detailed study getting the advice of experts of bankers of people that are involved in forex and so, you can see all of the research done there and they conclude that the general rule is that forex trading is how long because of all of these factors and even more and you can read the the online the online factor that is there. Therefore, to conclude, individual currency exchange is completely

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halal. As long as the two conditions are met the first condition is that it is done spot transaction and the second condition is that you have the ownership of what you are given and if it is done then it is no problem whatsoever even if it is done for a profit. However, forex trading really has many problematic areas. And that is why I am not aware of any fifth Council of the world that has allowed forex trading I asked Allah subhanho wa Taala to bless you with an alternative means to make pure money and it will be in shallow Tada. better for you and without a shallow Tada. We conclude our q&a for today and shall lucked out I will see you next week for our next q&a Giacomo. He said I'm

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willing to barakato