What Instruments Can Be Traded With An Islamic Account?

Islamic accounts

When it comes to trading, the concept of “halal” is critical for many Muslim traders. Halal, which means “permissible” in Arabic, refers to financial activities that agree with Islamic law. This includes avoiding interest-based transactions because they are considered to be usury and are banned in Islam. In this article, we will see how Islamic accounts promote halal trading and types of instruments you can trade with Islamic accounts.

What are Islamic accounts?

One area where halal trading becomes important is in the use of “swap” contracts. A swap – a type of derivative, is a contract where two parties agree to exchange cash flows in the future based on a set of predetermined terms.

In the context of forex trading, this often involves exchanging the interest payments on a currency loan. Because the exchange of interest is considered usury and is prohibited in Islam, swap contracts are not permissible for many Muslim traders.

To handle this issue, while still allowing muslim traders to trade, many forex brokers now offer “Islamic accounts” as they are compliant with Islamic law. These accounts do not charge or pay interest on overnight positions and instead use a mechanism known as “swap-free” or “halal” accounts.

Islamic accounts offer a solution for Muslim traders who want to trade in the financial market without compromising their religious beliefs.

What Instruments Can You Trade With Islamic Account?

There is a rumour among traders that with Islamic accounts you can’t trade many markets. But that’s not true. With these accounts, you can trade all instruments that you can trade with a standard account. Some of the different typesof instruments that can be traded with Islamic accounts include:

1. Currency pairs: Islamic accounts allow traders to trade in the major, minor and to some extent, exotic currency pairs without the added cost of overnight interest charges. Some brokers don’t allow trade of exotic pairs due to wider spreads, so traders of Islamic belief must check with their respective brokers before trading exotics.
2. Commodities: You can trade commodities such as gold, silver, oil, and other precious metals with Islamic accounts.
3. Indices: Islamic accounts allow trading in indices without the added cost of overnight interest charges.
4. Stocks: With Islamic accounts, you can trade in stocks of major companies listed on the stock exchange without the added cost of overnight interest charges.
5. Cryptocurrencies: Some Islamic accounts also allow trading in cryptocurrencies such as Bitcoin, Ethereum, and Litecoin without the added cost of overnight interest charges.

How to Pick Islamic Account?

When choosing an Islamic account, traders should be aware that not all brokers offer conditions that adhere to their beliefs. Thus, traders should carefully read the terms and conditions of the account to ensure that it is truly compliant with Islamic law. Additionally, traders should also consider the broker’s reputation, regulation, fees, and the trading platform they offer.

Islamic trading accounts offer a solution by adhering to Shariah law and providing features such as no interest or overnight swaps. These accounts allow traders to access a variety of instruments including forex, commodities, and indices. Before signing up with a broker that offers an Islamic account, make sure you read all the policies and ensure it complies within halal trading. Some brokers often charge hidden costs. So, pick a broker which is open to understand your requirements and address them properly.