XAUUSD gold spot trading in forex

Salamu aleykum, hope this message reaches you in good healh and iman. Amiin

I trade currencies and gold. When I trade gold, I trade spot gold for USD and I do not want delivery. I instead buy a few ounces of gold with USD and when the price rises I take profit and it reflects in my account immediately.

In simple terms, I instruct the broker to buy certain amount of gold in USD from my available funds. The funds are taken from my account immediately, broker takes note of where I want to exit this contract in profit and loss and I am then matched with other traders who have set their own parameters just like me. Once I am in profit I can close my trade and the funds are in my account immediately.

The same happens when I either sell or buy currencies. I have recently come to know that my broker trades XAUUSD (Gold vs USD) in spot CFD, not future CFD, not options CFD, not forward CFD. Only spot CFD where the cash settlement is immediately in USD and it shows in my account in 30 secs.

The confusion is that some brothers have said CFD XAUUSD is a derivative and my argument is that this contract is valid since gold is a currency in the forex market and so are all the currencies since they are backed by gold and silver but are in paper format aka fiat currency and that this contract is not options, futures, forwards where cash settlement is delayed.

The gold is stored in vaults across the world and when I am buying gold I am buying troy ounces of gold for USD based on the current price of gold, when I am selling I am selling troy ounces of gold, straight from the vault for immediate cash settlements. Gold is recognised as a currency in the forex market and all currencies derive from gold or silver but changed into paper money also known as fiat.

There are many banks, institutions, hedge funds and retails traders all connected to this live price feed and transactions are all done via an ECN (electronic communication network) broker.

The broker charges me commission as they are connected to liquidity providers which charge for access to live price from vaults and to be connected to a network that has millions of customers who trade gold via the network. There are many brokers connected to this network and each broker has thousands of customers, so they communication is instant; the transfer of funds is instant (max 30 sec for funds to be in my account).

The broker offers margin/leverage (this is sometimes called a loan, others say that a large portion of your funds will be used in the trades, so you can profit a lot and also lose a lot) and does not charge interest on a loan if you hold the positions less than 24hrs.

After 24hrs, there is an interest charge for those holding positions from previous day and this is sometimes called swap fee. There are many things to be said about swap fees but since I do not hold a trade for more than 2hrs I never pay swap fees or interest. However there is an Islamic account which does not charge any interest fee even if you hold the position longer than 24hrs, I personally do not swing trade.

Is this type of contract allowed where, and I must stress, this is spot trading where cash settlement is instant and not a futures CFD, not forward CFD, not options CFD or any other CFD, this is simply SPOT trading where gold is considered a currency from physical gold storage across the world. This live price is regulated and is always the same on any broker; it’s just that some brokers charge clients extra money to trade it in order to pay the connection fee to the liquidity providers, some broker charge less as they have a lot of customers.

And Allah knows best

Jazzakuma Allahu khairan in the dunya and akhira

Wa salamu aleykum

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Assalamu’alaikum warahmatullah wabarakatuh

I hope I found you well, my brother.
I’m also interested in trading forex myself. I haven’t got it into my hands yet, but I’m still learning about how it works and how my trading will be compliant with shariah.

From what I understand so far – which, we also need muftis’ and other knowledgeable people’s opinion, and Allah knows best – the issue with the trades done as per your explanation is not the nature of the gold and currencies itself, nor the the type of settlement (spot, not future, not options, not forward). Literatures from within this forum mostly argue that gold and currency trading per se is permissible. And the only settlement permissible is spot transaction. Though, there are still some counter arguments regarding the two-day settlement of spot.

One of the issues with most retail brokers is the use of CFD/derivative instead of real spot transaction. Most scholars agree that CFD is not shariah-compliant. This is because with CFD we don’t buy the real asset. As the name implies – contract for differences – it’s just a contract, where, upon closing, the parties involved just calculate the price difference and the losing party pays it to the winning party.

It’s a zero sum game between two parties. It tracks price of some other asset and only settles the difference of the price. We don’t get engaged directly with the asset’s market.

It goes like
I (Investor): Hey B, let’s play a game.
B (Broker): Sure, what is it?
I: Let’s take a close look at the gold’s price. When I open position, we take note of its price, then when I close position, we take note of its price once again. When the price goes up, you pay me the difference between the close price and the open price.
B: Umm, okay… But if the difference is negative, that means you pay me, correct…?
I: Yes!! So we play it fair!
B: Umm… okay… whatever… Let’s get going.

Since we don’t really trade the underlying asset, we can’t say that we are really trading gold or currencies. In my point of view, with the mechanism of CFD itself, to put it into extreme, we could even trade CFD on COVID graph like equating the daily case to USD and profit from it (though, no one broker is doing this because it’s not a proven graph historically, but it’s still possible to be done theoretically).


Wa’alaikumussalam warahmatullah wabarakatuhu