Principles

Currency Trading (Forex)

Trading one currency for another is, in principle, permissible in Islamic law. Trading currency on a forward basis is not permissible.Contemporary forex trading also involves a lot of speculation and volatility. Therefore scholars differ on whether this is permissible or not, much like Day Trading in stocks. For an in-depth analysis, please refer to the extensive Islamic Forex Trading article by Dr. Mohammed Obaidullah.

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Why is interest/riba prohibited in Islam?

The question on why riba is prohibited is often raised by some who wonder how something that is now so prevalent in the world's economy can be prohibited.For some, the answer to your question can be as simple as "because God said so in the Quran", but for others, an analysis of why it is prohibited needs to be done.What is riba anyway?First, we have to define what riba is. Prohibited riba in Islam falls in two categories (both termed Riba, the Arabic term for Usury).

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    Purification by Charity

    Since most bank accounts, Mutual Funds, and other financial instrumentsoperate under non-Islamic Financial systems, they have some income frominterest despite the invetor (or the fund managers) being keen on notto get any interest.The reason for interest creeping all over the place is that financialinstitutions will give interest on cash balances, often mandated bylocal law.

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    Pitfalls to avoid

    Although Islamic Banking, Finance and Investment has been rising steadilyin the second half of the twentieth century, there has been some setbacksand pitfalls, that every Muslim should be aware of.Whether you are an individual looking to invest in an Islamically-Correct®way or an enterpreneur willing to provide Muslims with an investment opportunity, you have to watch for several things.The morale of the discussion below is "let the buyer beware!". If you lookaround, you will find respectful institutions that offer competitive good services.

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    Insurance

    Commercial Insurance has been deemed unacceptable under IslamicSharia law by many scholars. This includes property insurance (house,car), life insurance, and health insurance.However, many scholars have allowed car and home insurance wheneverthere is no Islamically accepted alternative available, and more sowhen the local law requires one to be insured.Here are some Fatwas on the ruling on Insurance under Islamic Law:

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    Loans / Financing

    In Western societies, Financing has become a way of life. The basic form of financing is to buy a certian product or service (e.g. TV set,Car, clothings, ...etc.) and pay in installments and interest.Loans in the prevalent economic system involves interest, which is prohibited in Islam.Aside from that, loans often encourage consumerism, where people buy things they don't need with money they do not have!

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    Prohibited Business Activities

    The following set of business activities are considered prohibitedin Islam, and thus investing in these kind of businesses is notsomething a Muslim should undertake.Food and Beverage Related

    • Alcoholic Beverages Islam forbids a Muslim to manufacture, consume or sell all intoxicating material, which include all Alcoholic beverages (such as Wine, Beer, ...etc.)
    • Pork and Pork Products

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    Mutual Funds

    Mutual Funds are groups of stocks and other investmentinstruments (Bonds, Certificate of deposits, ...etc.)managed by a "professional" and pooling money fromthousands of investors and leveraging the aggregatedamount of the pooled money in buying stocks and bonds.

    Types of Mutual FundsAny Mutual Fund falls roughly into one of two categories (as below).Before you invest in a fund, you have to know which type it is, andwhether that type is suitable for your goals:

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    Debit Cards

    Debit Cards, also known as Check Cards, is a special form ofcards that look to the merchant just like a Credit Card, with the VISA or MasterCard logo on them. However, this card is actually an ATM card that allows you to withdraw money from ATMs (directly from your checking account) without incurring interest. Also, the purchases made are debited (thus the name) from your account instantly.

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    Mortgage

    Mortgage is a long term loan, usually for a person or family topurchase a house over a long period (30 years). This is fairlycommon in Western societies (perhaps the only way onecould afford or buy a house in those societies).

    This practice barely exists in Muslim countries, at least for now.

    This involves interest (and a lot of it!), and therefore alternativeshave to found to this method.

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    Bank Accounts

    Conventional Bank Accounts fall into two main categories:

    • Saving Account: Here you keep your money in the bank (for safety reasons) as well as earn a fixed interest rate on it.
    • Checking Account: This normally doesn't have interest paid by the bank.

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