Forex traders can access the markets 24 hours a day, every weekday. Forex is the most easily accessible asset class, drawing millions of traders daily. However, Muslim traders who follow Sharia law may feel conflicted as the Quran forbids charging loans with interest and gambling. Regular Forex accounts charge interest for keeping positions open overnight, and Forex trading is technically a form of betting since traders trade CFDs rather than actual assets.

Forex brokers offer swap-free accounts to traders of the Muslim faith so they can place orders without violating their religious beliefs. Although Forex trading is a form of spread betting, it is not gambling. Many traders approach trading as a business rather than a casino. Trading can be a lucrative source of income for individuals who invest hard work and resources into developing their skills.

If you’re interested in forex trading without swaps, this guide is for you. We’ll explain what swaps are and how Muslim traders use swap-free accounts.

Here’s what traders should understand about swaps in Forex:

  • A forex swap is an interest payment applied to positions held overnight.
  • Swap rates are linked to the interest rates established by the central banks of the issuing countries of each currency.
  • Swaps will only be charged if positions are held for more than 24 hours.
  • Swap-free accounts do not charge overnight fees.
  • Swap-free accounts were created for Muslim traders who were prohibited from earning or paying interest.
  • Some currencies can earn interest through swaps when they are held overnight.
  • In a currency pair, the value of one currency is always expressed in relation to another currency. Each currency has its own unique interest rate. Negative currency swaps may occur when traders hold a currency with a higher interest rate than the currency they have acquired.

Islamic swap-free accounts for forex traders

Under Sharia law, Muslim traders are not allowed to experience activities that involve interest payments. As a result, millions of traders are prohibited from investing in highly speculative asset classes, such as futures and options. To accommodate these traders, brokers offer Swap-free accounts, also known as Islamic accounts. These accounts do not charge commissions, but instead, brokers might increase spreads or charge increased administrative fees to cover their costs.

Rules for Islamic traders

According to Sharia law, spot trading in Forex is permitted as it does not involve interest rates and/or gambling. However, some asset classes and trading strategies can be seen as ambiguous between halal and haram. To this end, brokers offer Swap Free accounts to assist traders. It is the responsibility of traders to treat trading as a business and not as a gambling house.

What is the difference between a swap-free and an Islamic account?

While brokers usually offer swap-free accounts to Muslim traders to comply with Sharia law, this may have limited appeal in some cases.

Brokers offering full-fledged Islamic accounts ensure compliance with Sharia law by limiting access to speculative derivatives and options and charging no swaps for overnight holdings.

Swap-free accounts do not charge swap fees and are a suitable alternative for those who want to avoid them. These accounts allow access to derivatives and CFD trading, which are usually prohibited by Sharia law. Although sometimes interchangeable, swap-free and Islamic accounts often have similar terms and restrictions.

Is Swap-Free Forex trading more profitable?

Swap-free accounts do not charge swap fees and are a suitable alternative for those who want to avoid them. These accounts allow access to derivatives and CFD trading, which are usually prohibited by Sharia law. Although sometimes interchangeable, swap-free and Islamic accounts often have similar terms and restrictions.

 

Brokers often increase other fees, such as spread markups, commissions, and administrative fees, to compensate for offering swap-free accounts. Additionally, Islamic-compliant accounts may offer fewer trading instruments compared to regular accounts. Therefore, consider opening a swap-free account only if your religious beliefs prohibit you from trading under regular conditions.

Key points to remember from swap-free Forex trading:

  • Swaps refer to the interest rates applied to forex positions that are held overnight.
  • The central banks of issuing countries determine interest rates.
  • It is forbidden for Muslim traders to engage in trades that involve swaps.
  • Swap-free does not necessarily mean lower costs, as brokers often make up for it by increasing other fees.
  • Swap-free forex accounts are commonly referred to as Islamic accounts.
  • Swap-free trading can be advantageous for traders as it enables them to avoid fees and implement more cost-effective long-term strategies.

 

FAQs on swap-free forex trading

What is a swap in forex trading?

Forex trading involves paying or receiving interest on overnight positions, which varies depending on the currency and its respective central bank’s interest rate.

How do swap-free accounts work in Forex?

Swap-free accounts are a specific type of forex account that permits traders to hold their positions overnight without incurring additional fees. These accounts are also known as Islamic forex accounts, which are tailored to suit Muslim traders who are prohibited from engaging in speculative trading, gambling, and trades involving interest payments.

Is swap-free Forex halal?

Swap-free forex trading can be permissible as long as it is not highly leveraged or speculative. It is considered to be the safest option for Muslim traders who wish to trade Forex. Spot trading Forex is also considered to be halal. However, derivatives and leveraged positions are considered to be haram.

Are Islamic forex accounts swap-free?

Islamic Forex accounts are designed to be swap-free in accordance with Sharia law. According to this law, Muslim traders are not allowed to engage in activities that involve receiving or making interest payments. Swaps are not present in Islamic Forex accounts as they involve interest payments for overnight positions and are considered haram. Therefore, these accounts provide a suitable option for Muslim traders who want to trade in the Forex market while respecting to Sharia law.

Are swap-free Forex accounts good for traders?

Swap-free accounts are beneficial for Muslim traders. However, traders who do not follow Sharia should avoid opening swap-free accounts. Although there are no swaps, traders usually pay increased fees to their brokers.