Is it halal? Real spot forex and commodity on Interactive Brokers (IBKR)?

Investment Questions and Chats
#1

Assalaamu’alaikum wa rahmatullah wa barakatuhu
Dear @Mufti_Faraz_Adam, @Mufti_Billal, and all of my brothers and sisters in faith.
I would like to have your opinion and point of view of this.

I’m highly interested in trading forex (not yet started) and being aware of all its concern regarding shariah compliance. I’ve known so far that forex needs to be spot and CFD/derivative is seemingly non-shariah-compliant because of its nature and mechanism.

Sadly, it’s very very hard to get a broker that certainly doesn’t deal in CFD/derivative. Even if they stated “Spot Forex” and doesn’t mention any “CFD/derivative”, still, the trading platform (usually MetaTrader) looks like a CFD/derivate because of how trade is shown to user in the form of open/close position, thus whether or not we truly buy the underlying asset is obscure.

However, I came across this broker called Interactive Brokers (IBKR, for short) that looks promising.

  • For forex, our account is denominated in multiple currencies. For example, if we started with GBP 1000 account, and we buy USDGBP pair for 100 units, our account clearly reflects the balance of USD 100 and GBP 925 (assuming 0.75 rate). This buy position doesn’t need to be closed like in other platform/broker: we can stay with this multi currency balance as long as we like. We can even buy other currency or product using that USD balance that we have. Moreover, all these currencies can be withdrawn or spend using their own debit card (of course it will be exchanged with the rate upon withdrawal). This confirms the buying of the underlying asset and ownership, doesn’t it? This is the screenshot of my demo account:

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  • For commodities, especially gold, you may check their website page (https://www.interactivebrokers.com/en/index.php?f=3187) where they state that we can request for physical delivery of gold (additional fee applies), although for US residents only. Even so, here on the details of fees (I can’t put more than 2 links) they state that there is a storage fee/cost, which means the gold is really there and we buy the underlying asset, doesn’t it? I don’t know with other commodities.

  • Regarding margin/leverage, they have two types of account: Cash Account and Margin Account.

  • In Cash Account, you can only spend what you have. The account balance is never negative in any currency. So, if you have GBP but wants to buy US stock, you have to convert it first to USD before you can buy the stock. Additionally, you can’t trade USDJPY or buy GBPUSD as it requires you to have USD in the first place to execute the order, unless you convert your money first to USD. I think this works like a normal bank account, just that it’s integrated with brokerage.

  • In Margin Account, you are allowed to borrow money, either leveraged or not. In IBKR, I think the concept of leverage on its own doesn’t mean a thing for our concern. For example, if your account only holds GBP but you want to buy US stock in USD right away, or trade USDJPY, or buy GBPUSD, you need to borrow money for the order to be able to be executed (in this case USD), either leveraged or not, because your GBP can’t be used. Even if you have GBP 1 million and want to buy US stock worth only USD 1, it’s still a loan. And in case of leveraged loan, you can borrow USD with the amount more than what you have in GBP (e.g., have GBP 1000 but buys US stock worth USD 2000). So, in my opinion, the leverage doesn’t matter here, it’s still borrowed money, no matter the amount, no matter if leveraged or not.

Unfortunately, IBKR doesn’t provide a swap-free account (as it’s not a swap!), and interest will always apply daily. However, since I want to day trade and this style of trading ensured itself that there is no overnight positions, and since IBKR explicitly says that as long as negative balance is closed within the same day it bears no interest (https://www.interactivebrokers.com/lib/cstools/faq/#/content/37133054), can I utilize the borrowed funds to trade?

I personally always thought of this kind of loan (no interest within some period, like this and credit card) as a no-interest loan because I commit to myself to pay it back in time and I ensure myself to have the capability to pay within the stipulated time. If I cannot commit or I can’t ensure my capability, I will never take this kind of loan.

And Allah knows best.

Wa’alaikumussalam wa rahmatullah wa barakatuhu
Jazakallahu khair.

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Forex non-CFD broker halal or haram?
#3

Assalaamu alaykum,

Hope this message will find you in good health

I am looking for a trading account that would allow me to trade forex/commodities with a shariah compliant method, @Vashikovich, could you explain me, if my understanding is incorrect, what do you mean by your description of the margin account,

As I understood, you can use a margin account and so leverage, but you would have to day trade to not get charged interest and swap fees ? ,Is it what you said in your last paragraph?

JazakAllahu Khairan

Assalamu 'Alaikum

#4

Assalaamu’alaikum

Disclaimer: what I am about to say below only around the issue of interest within brokers, putting aside any other shariah compliance issues. Please find yourself comprehensive learning and fatwas about shariah compliance as your faith and beliefs.

@BabYoda212
As far as I know, most brokers only accrues interest on a daily basis, i.e., interest is only charged whenever you have open positions that last until the broker’s closing time (may vary between brokers).
That being said, that means if you exclusively day trade, you will never get charged any interest because you won’t have any open positions left overnight. Please check again with your brokers though.

However, if you plan to swing trade, that means you need some way to not be charged interest when you left an open positions. Some brokers claim that they have swap-free/islamic account that don’t charge you overnight interest, though, whether they are legitimately shariah compliance or not is… questionable…

There is another issue with this way of avoiding interest though. Some people still prefer to not do this way at all because the clause of interest is still ingrained within the rules itself.
Take for example a credit card. Usually it has a rule like, “if you pay before the due date, you won’t get any interest. Buy if you pay late, you will get interest.” You get what I mean? Whether you pay in time or not, the interest is ingrained into the rule. That’s why some people prefer to avoid using credit card at all. Same thing: if you close your position within the same day, you won’t get interest; otherwise, you’ll get it.

As for this matter alone, as for myself (this is my own opinion and preference), I still take this risk to do it anyway as I think this is a very grey area. When I use a credit card, or when I do day trading, I promise and I commit to myself that I can afford and I will pay whatever I owe before the due date so the “interest-free” loan is always valid for me.

The interest issue regarding day trading applies to most brokers.
With IBKR that I talked about above, is more into that IBKR is not a derivative/CFD broker. You may read on their website and FAQ. They don’t even have a concept of real “position” or “contract” for forex trading, emphasizing that the forex transaction is real. They do have “virtual forex position” though, only as tool for forex trader to track their trade.

Oh, and by the way, if you don’t like the concept of leverage at all or want to get rid of even the grey areas I talked above, you can open Cash Account on them so you are not allowed to take loan at all.

And Allah knows best.

Jazakallahu khairan
Wassalamu’alaikum

1 Like
#5

Oh, another thing about interest.

Even the loan is completely free of interest in any ways, some people will still avoid it because of these issues:

  • “Gaining indirect benefit from loan”
    You know, if we take loan and trade bigger, that means their commission is also bigger. Even though it’s not interest, they still get benefit from their own loan.

  • “Combining loan and transaction”
    Since their loan can only be used to transact on their own platform.

So, I think having a Cash Account on IBKR will free you from any kind of issue regarding forex trading, as far as I know and understand.
May need some light shed by @Mufti_Billal @Mufti_Faraz_Adam

Wallahua’lam

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#6

Salamu aleykum brother,

All brokers are CFD brokers. If I am wrong please correct me. Also with ownership of currency, wouldn’t your profit be converted to your account currency when close the trade. instead of profiting in a particular currency (ownership) and then later on converting it back to USD or GBP in order to withdraw.

in my understanding CFD is just another word and does not take away from the actual way of trading. most brokers deal OTC and are basically dropshipping the price and use the word CFD to be allowed to operate in a country they need customers in or from. Allah knows best

#7

Wa’alaikumussalam, brother, may I find you well.

Short response: Maybe not all brokers utilize CFD.

Long response:
Some brokers claim (at least in their website) that they use CFD, while some brokers don’t mention CFD, and other says spot forex. Unfortunately, there is no way for us to know exactly how it works internally within them, unless it’s explicit that the broker is shariah certified, which so far we haven’t found any.

About ownership, this is exactly why I am interested in IBKR.
I can open an account with USD as my base currency and deposit in USD, trade AUD/EUR and keep my profit in EUR indefinitely, and later withdraw all my money into JPY. However, for every conversion, there will be commission – just like a money changer. In fact, for trading, the commission still employs the same mechanism – it’s like trading forex to a money changer. I can even open a trading position, leave it open indefinitely without closing it, and later directly withdraw the foreign currency.

And Allah knows best.

Wassalamu’alaikum

#8

May Allah reward you for your effort.

My brother all brokers are CFD, CFD is just a word with some brokers and with some it is actually CFD trading since they are B Book and never pass on your trade to the liquidity providers and go against you because they are essentially market making. this is why you have good traders getting wicked out out of a trade since the broker does not have money to cover losses. when a trader wins broker pays, when a broker wins, client pays.

I am a forex trader and Alhamdulilaah have made good gains and have left my job to be fulltime trader. the problem now becomes, what do I do with all the money I have made trading XAUUSD Spot.

I am hearing it is haram, some are saying halaal. I am really confused and thinking about quitting.
it took me almost 3 years to master the craft and make a living out of it. but alhamdulilaah, we accept the truth if it is haram and we move on. Allah will give us something better.

My problem with these people giving fatwa are mostly ignorant about what forex really is or have weak fiqh. so I will continue searching until I get a proper answer and then decide based on the findings. ofcouse if it turns out to be haram, I WILL BE QUITTING FOREX.

May Allah allow us to find halaal rizq. amiin.

1 Like
#9

IBKR is CFD provider brother.

#10

Assalamu’alaikum

May Allah shines light of knowledge upon us.

From what I understand so far from muftis and literatures, these are for sure:

  • Spot trading is permissible
  • CFD and derivatives are not

Now, whether or not all brokers are CFD, which ones are honest and which ones are twisting the fact, we will never know for sure. In my opinion, the only thing we can rely on is the brokerage regulation backing them – just like how we rely on sharia-certification, which basically is also a type of regulation.

I actually also believes that most, if not all, retail forex brokers use CFD. This is because it’s the simplest way for them to build the business and lure naive traders, thanks to high possible leverage, minimum deposit and trade value, and market readiness (by being the market maker).

Back to IBKR, since they are more into institutional broker, maybe there is a better chance for them for not using CFD. You may check on their info and FAQ (bottom of page) here: https://ibkr.info/article/2707. They stated that they have two different trading products, i.e., Forex CFD and Spot FX. They explained the difference of those within their trading platform. Whether or not they are really different, wallahua’lam.

So then I think we should rely on the regulation backing them. IBKR is one of the giant brokers that is publicly listed and multi-regulated globally, one of which is US brokerage regulation (i.e., FINRA, the hardest to get, most/all retail brokers don’t have this). According to US regulation, US residents is not allowed to trade CFD at all. So, if US residents can still trade Spot FX but not Forex CFD in IBKR, that means the Spot FX one is truly not a CFD. I think they are in no position to be dishonest with it, since they are already publicly listed and having their financial report transparent, thus it would stall their business if they do so.

I apologize if I sounded like IBKR salesperson by promoting it nonstop.
Contrary with you, I haven’t trade forex yet, but I badly want to.
I’m also in search of reliable knowledge and fatwa about this. So far, my conclusion is that only spot forex is halal, and this is the only broker I find that I can believe they are really doing spot without CFD.
I need you guys to bombard me with knowledge and counter arguments so I learn and understand better and better.

Wassalamu’alaikum

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#11

Assalamu 'alaykum brothers,

I hope this message will find you in good shape,

In my understanding, IBKR offers a bunch of investment products, from CFD, futures, spot to ETF and such…, you would have to chose between different markets places (exchanges) to trade with the instrument you want when you create your account,

Products :

Exchanges :

May Allah grant us ease

Assalamu’alaykum

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#12

Wa aleykuma salaam.

The link you have posted confirmed exactly what I was talking about. CFD is based on the spotFX price, it is just a change of wording since they dropship the price.

my question was regarding XAUUSD SPOT, sorry to repeat myself but I am wondering if the money I made trading this pair is halaal. I ask because I have quit my job and trade only XAUUSD and have also managed to help others earn money with this pair.

it is only now that I have come to know about these religious rulings etc. I am thinking about quitting forex so what do I do with this money. do I give it away as sadaqah or blow my account on purpose and find a new career.

I hope people understand my situation. I fear my money could be haram and since it is a large amount I am also more afraid of doing things with it incase it riba or whatever.

if anyone can help me please.

May Allah reward us all with halal rizq. amiin

#13

Salamu aleikhum akhi,
There is also another broker called Saxobank (its an actual bank thats lets u trade spot from my understanding and their statements). Looks like its pretty similar to the one you mentioned. This seems to solve the issue with CFD as closed positions are not credited until the next business day which I guess makes their statement of “spot” more credible. An issue I’ve come across however is the leverage, even if you close the positions before midnight.

Im aware that you can close trades before midnight to avoid the interest but there seems to be another issue where (broker is lending you money so they can earn more comissions because you will use bigger positions). Im not sure about this and would like our muftis to shed some light into this matter and tell us if non-CFD with these type of brokers would actually be halal or not. (I know that one of the biggest issues was CFD and actually trading something and gaining ownership)

Walaeik asalam wa rahmata Allah

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#14

Assalamu’alaikum

Sorry if I’m confusing and not being clear when I posted the link.
Yes, the link is entirely about their Forex CFD product. But what I want to underline is the FAQ on the bottom of the page, especially these:

Can anyone trade IBKR Forex CFDs?

All clients can trade IBKR CFDs, except residents of the USA, Canada, and Hong Kong. There are no exemptions based on investor type to the residency-based exclusions.

What is the difference between IBKR Forex CFDs and IBKR Cash Forex?

IBKR Cash Forex is a leveraged cash trade where you take delivery of the two currencies making up the pair. Your Forex-trading related balances are combined with your other balances arising out of your other trading activity, and you pay or receive interest on these consolidated balances based on the benchmark rate for each currency.

By contrast IBKR Forex CFDs are a contract which provides exposure but does not deliver the underlying currencies, and you pay or receive interest on the notional value of the contract. The benchmark rate for the contract is the difference between the benchmark rates for the two underlying currencies. This is in principle similar to the TOM Next rolls used by other brokers, but offers greater stability as benchmark rates generally are less volatile than swap rates.

They have Forex CFD and Cash Forex/Spot FX as separate products. Of course we wouldn’t want to touch the Forex CFD at all because it’s obvious, but the Cash Forex/Spot FX one might be legit forex trading.

About XAUUSD, I read that they have metal as well, especially gold and silver. Whether it’s CFD or not, well, I don’t personally know. But they mention “delivery fee” and “storage fee” for gold somewhere in their website, which may imply that it’s not CFD. But further investigation is needed.

Anyway, I understand the problem you are facing right now.
Since you already have invested your time in trading career and possessed a significant knowledge for your trade to be profitable, if you want to continue trading, there are some options that you may take as per my understanding so far:

  • Look for brokers that don’t deal in CFD (as CFD is ultimate no-no)
  • If you don’t want to use margin/leverage, you might want to look for no-margin account (like IBKR’s Cash Account that don’t provide margin at all)
  • If you want to be 100% sure of everything, maybe offline money changer or gold/jewelry store? (But I think the spread is really really bad, isn’t it?)
  • Or, maybe a better option, trade stocks instead since it’s already deemed as entirely permissible

As for your already-made profits, I’m still in very little knowledge as what to do to purify it. Perhaps there are aplenty of other topics in this forum where people face the same issue: how to purify non-halal money I already made.

May Allah grant you ease and halal rizq.

Wassalamu’alaikum

#15

Wa’alaikumussalam, akhi.

Thank you for the share. I’ve also stumbled across Saxobank before and I am also interested by their wording of “Spot FX” and having it as separate product from Forex CFD, implying it’s a legit spot forex.
However, what makes me being highly more interested towards IBKR is the idea of having a multi-currency account and the ability to withdraw the foreign currency directly, even the trade position is still open. This gives further certainty for me that the ownership is indeed real.

About the “indirect riba” you mentioned, i.e., benefiting from a loan not as a strict loan interest, I’m also aware of that. What makes me believe that IBKR’s loan is “better” is the idea that the money they lent can be extended beyond IBKR.
From what I read so far – more investigation is needed though – the money we borrow in IBKR Margin Account can be used via their debit card for purchases somewhere else (though this may still benefit them through commission rate from the merchant), or even withdrawn as cash.

This is in contrast with the usual retail broker where the leverage is tied and only tied to the size of the trade we make and thus the commission they make. It’s why “broker is lending you money so they can earn more commissions because you will use bigger positions” becomes an issue, as per my understanding.
It’s still true that if we trade on loan in IBKR, they make bigger commission. But in this case, it’s our own choice to trade there, not their strict requirement of loan.

Still, I would like to hear from muftis about this @Mufti_Billal @Mufti_Faraz_Adam

Wassalamu’alaikum warahmatullah

#16

Wa aleikum asalam akhi,
I remember some time ago someone posting about Fx and leverage and if I recall correctly, one of the muftis said the leverage without interest was not “the” biggest issue but it was the fact that it was CFD and there was NO ownership taking place when entering positions. Im very interested in their opinion on this matter as there seems to be other options available now and this topic of interest free leverage being the one remaining that has unfortuneately not been discussed as much as the CFD aspect.

If our muftis also consider it riba from an indirect benefit then what type of riba would it be classified as? And does it still count as a “loan” if the broker is trading on your behalf when placing the trades etc?

Barak allah feekum @Vashikovich @Mufti_Billal @Mufti_Faraz_Adam

#17

you are basically trading the exchange rate and buying the USD (which you own in your account), the XAU is used for reference as to whether to buy more dollars and sell your dollar at the top (when you close the trade) or sell your dollar, which again you own, to buy at the bottom (when you close the trade), this is not shorting as currencies are not stock. I think I misunderstood what XAUUSD trading actually means and need to study this a bit more. XAU is considered a currency in forex. there will be no physical delivery of anything in forex, whichever currency your profit will be converted and deposited in your account.

The CFD is derived from the spot price which makes no difference. I stopped trading altogether for now until I get a clear cut answer just to be on the safe side.

#18

Brother, will this cash be delivered to the customer’s door in the forms of actual cash?

#19

assalamuaalikum bahi samj nhi arhi simple baty kiya forex allow hai ya nhi ?
i dont understand peoples are saying about brokers swp free account i humble request in simple way forex is allow or not in islam because 50 percent ulma say allow or 50 percent not agree what gonna i do ???

#20

speak to you local scholar and ask for reasons and compare with other ulama.

#21

Assalam, so have you gotten an answer on the interactive brokers spot trading? Can we as muslims trade forex on the platform or not?