Currency trade is valid with physical or constructive receipt at time of contract
30-11-2014 | IslamWeb
Question:
Salaam, I have to post my question again as I was referred to some previous fatwa’s that dont actually answer my particular question. I would really appreciate if I could get an answer that looks at the particular detail in my question as it is not the same as the other Fatwa questions, here is the question again below, Jazak-Allah Khair. As-salaam-alaikum, I trade currencies on the internet using a broker, when I open a trade (for example buying 100 euros against the dollar) I enter a contract with the broker and they quote me the current price at that exact time from the bank, then when I close the trade (sell the 100 euros against the dollar) 2 days later, the Broker settles the trade with the bank and will apply the profit/loss in my account based on how the exchange rate has moved up or down. There is no interest charged for holding the trade for 2 days. Can you please let me know if this is ok to do? Thanks
Answer:
All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad, sallallaahu ‘alayhi wa sallam, is His Slave and Messenger.
The trading of currencies is a type of money exchange. Among the conditions for the permissibleness of money exchange in Islam is the receipt of the two items being exchanged at the time of contract. It is not permissible to delay receipt.
Abu Al-Minhaal said: "I asked Al-Baraa' ibn ‘Aazib and Zayd ibn Arqam about money exchange and they said, 'We were merchants at the time of the Messenger of Allaah, sallallaahu ‘alayhi wa sallam, and we asked him about money exchange. He, sallallaahu ‘alayhi wa sallam, said: "If it is done hand to hand, there is nothing wrong with it, but if it is done on credit, then it is not valid." [Al-Bukhari and Muslim]
Money exchange may be by physical receipt (i.e. hand to hand) or by constructive receipt (i.e. by giving order or control) as stated in the resolution of the Islamic Fiqh Academy:
"Among the constructive receipt of the value that are permissible as per the Sharee‘ah (Islamic law) and ‘Urf (local custom) are the following:
1. Transferring money into the client’s account in the following ways:
a. When it is deposited into the client's account, directly or via bank transfer.
b. When the client makes an immediate currency exchange contract with the bank in case of buying one currency for another on behalf of the client.
c. When the bank – upon the instructions of the client – deducts a sum of money from his account to another account in a different currency, whether it is in the same bank or another bank, to the benefit of the client or another beneficiary. The banks should abide by the principles of Islamic exchange in this regard.
The delay in transferring the money in the form by which the beneficiary becomes able to actually receive it is excusable for the usual amount of time that such transfers take in the banking system, but it is not permissible for the beneficiary to dispose of the currency during this grace period until the bank transaction takes effect in the sense that it becomes possible to actually receive that sum of money.
2. Receiving the check if there is a balance that covers the amount to be withdrawn in the currency in which the check is written, and the bank takes the check (in return for payment of the money)." [End of quote]
Based on that, if receipt does not take place at the time of contract, either physically or constructively, between you - or someone representing you, such as an intermediary - and between the bank, then the transaction is legally invalid unless the mentioned delay is among the types of exceptions mentioned in the above decision from the Fiqh Academy; specifically that immediate exchange is impossible taking into consideration the usual periods of time in the money market, on condition of non-disposal of the currencies before the possibility of actual receipt.
Allaah Knows best.