Question :
What is the Islamic ruling on trading in Forex, knowing that some companies have informed me that leverage is not a loan but a financial tool to amplify capital value, in addition to the absence of swap commissions?
The Answer :
All perfect praise be to Allah the Lord of the Worlds. May His peace and blessings be upon our Prophet Mohammad and upon all his family and companions.
The jurisprudential framing of what is known as leverage, used in the trading market, is considered a loan from the broker to the trader. This loan, in practical dealings, may or may not involve interest. If it involves interest, then it is undoubtedly considered usury (riba). If it is a loan without interest, it is also considered riba because the broker benefits from the pre-agreed commission on every financial transaction made by the trader when investing using leverage. Additionally, it involves a combination of a loan and a sale, considering that the broker lends to the trader, and that selling and buying can only be done through the lender. This is also forbidden in Islamic law. In conclusion, leverage is a loan that brings benefit for the lender, and, according to the Sharia maxim in this regard, every loan that brings benefit for the lender is considered usury.
The reason for framing leverage as a forbidden loan is that in its practical application, it provides multiplied power granted by the broker to the trader, enabling them to multiply their capital and trade with this multiplied amount in the financial market. The broker provides the trader with a financial amount to trade with, and the profits gained by the trader through leverage are multiples of the profits they would have earned if they had only used their initial capital. On the other hand, the risk of loss increases as the leverage size grows, especially if the broker does not intervene to stop the loss, ensuring that the trader's losses do not exceed their capital.
The broker benefits from this leverage through the commissions they receive on each buying or selling transaction, which are higher than if the trader had traded only with their initial capital. This means that leverage has a real impact and is not just imaginary amounts that have no effect in reality.
In conclusion, it is not permissible to engage in any transaction that involves the leverage system as it constitutes a forbidden usurious loan. This is sufficient to deem such a transaction as prohibited. And Allah the Almighty knows best.
