What is Islamic forex? How to open a swap-free forex account? These questions are frequently asked by Muslim investors with religious sensitivities. Investors, especially those who think whether forex is permissible, are more prone to interest-free forex accounts. In addition to all these, there are many advantages of the Islamic forex account. For this reason, it is preferred by both religiously sensitive investors and investors who have developed a trading strategy suitable for swap-free forex accounts. When this is the case, we started to see an account type called Islamic forex in many forex companies. In this article, I tried to discuss what Islamic forex is and the advantages-disadvantages of interest-free forex.
What is Islamic Forex Account?
An Islamic forex account is a type of account in which swap costs or revenues, also called interest, are removed. When you trade in a normal forex account, a certain swap income or cost occurs every night.
For example, when you buy USDPKR, minus the swap fee will be charged to your account every night. Because the interest of the Pakistani Rupee is higher than the interest of the dollar, and you indicate to the company you work for that you want to buy the dollar against the Pakistani Rupee. In this case, the firm will deposit the money for you in Dollars, not Pakistani Rupees. As a result, a certain overnight interest income is deprived. A certain part of this overnight interest will be requested from you.
So what would happen if we entered the USDPKR sell transaction? This time, the money would have been moved to Pakistani Rupees instead of dollars. Since the interest offered by the Pakistani Rupee is higher, you would ask the company for the overnight interest rate. Plus swap income would be credited to your account.
Islamic forex accounts are swap-free forex accounts. We can also call it interest-free forex because none of these overnight interests are credited to your account. You neither pay interest nor earn interest income.
What are Islamic Forex Account Advantages?
Some of those who prefer Islamic forex prefer it because of religious sensitivities. Since it is interest-free forex, it saves you from all interest events. Thus, the interest problem, which stands out as the most important issue for those who think whether forex is permissible, is eliminated. Many theology experts consider forex to be halal with interest-free forex.
Islamic forex accounts have other advantages as well. Since it is interest-free forex, it saves you from swap costs if you are trading in parities with high swap costs. Especially the USDPKR parity, the Dollar/PKR, is one of the best examples of this.
Many investors thought the dollar would rise in the long run. In this case, you can buy dollars in forex with relatively low leverage and wait for a long time. Since the leverage will be low, your trade will not be closed if your trade goes wrong. At the same time, since you are in a buying position in USDPKR parity, the swap cost that will be deducted from your account every day will not be deducted from your account. Thus, you wait for the dollar to rise for a very long time without making any losses.
What would happen if there was no swap-free forex account? In this case, when you buy dollars, even if the exchange rate remains the same, you will lose day by day. That’s why interest-free forex has become an attractive account type for long-term traders. I explained which account types are advantageous according to the investor type, in my article titled “I would open an account with which forex company.”
What are the Disadvantages of Swapless Forex?
If you have traded in swap-free forex accounts to earn swap income, will you be deprived of swap income this time? For example, if you enter the sales transaction in USDPKR parity and wait, you will not get swap income every day.
In addition, the minimum collateral amount, leverage rates or spread rates may vary for some companies for swap-free forex accounts. Despite all this, Islamic forex accounts make sense for both religiously sensitive investors and investors with a long-term trading strategy.
We always went through the example of USDPKR. Because swap in this parity is much more than others. That’s why companies impose some restrictions. If you want an interest-free forex account, you can trade as much in USDPKR parity or you must have such a lot of transactions per month that you can use the USDPKR parity in an interest-free forex account.Share this article