What is a Swap Free Account?
A Swap-free account or Islamic account is a type of trading account which does not involve interest for holding the position overnight. Swap-free accounts have been introduced recently to facilitate Muslims as Islamic Shariah principle forbids Muslims from paying interest on a loan or paying interest in the form of a swap.
The broker is not eligible to deduct any rollover interest swap from Islamic accounts. Consequently, the result of trading solely depends on exchange rates during the particular time frame. The broker, alternatively, uses different strategies like charging fixed commission combined with widening the spread rather than deducting a portion of the rollover interest swap.
Although there are several swap free brokers available in the market that are offering Islamic accounts, we have selected 7 best brokers that are providing best Islamic accounts. Below are the criteria we used for brokers selection.
Top 6 Islamic/Swap Free Brokers 2019
What is Swap-Free Account?
Islamic accounts/swap free accounts are trading accounts that are designed to facilitate Muslims in forex and other trading instruments. These accounts do not involve interest that brokers generally charge for holding position more than one day. Instead, Islamic/swap free brokers charge a fixed amount for overnight positions. In some cases, swap free brokers charge the fee in the form of wide spreads on Islamic accounts compared to other accounts.
What is a Swap?
A swap is a derivative contract which allows two parties to exchange liabilities or the cash flows from two different financial instruments. The majority of swaps contain cash flows according to a notional principal amount including a bond or loan. The most well-known type of swap is an interest rate swap. These swaps never trade on forex or stock exchanges. Instead, swaps are generally over-the-counter contracts that are mainly between financial institutions and businesses.
What is a Carry Trade?
Whether you are trading stocks or commodities, carry trade is one of the most important trading strategies. However, this strategy is popular in currency trading. Carry trade means buying a high yielding currency and funding it with a low yielding currency. The most famous carry trades strategies contain buying high yielding currency pairs like the New Zealand dollar/Japanese yen or Australian dollar/Japanese yen. This is because the interest rate spreads on these forex pairs are generally very high.
Is Forex Trade Forbidden or Permissible in Islam?
With the substantial growth in trading markets along with the innovation of online trading, more and more people are seeking to make their career in financial markets. However, the majority of Muslims are yet unaware of the real status of trading in their Shariah laws. Forex trading is forbidden in Islam as it involves interest or swaps. Therefore, many forex brokers have recently developed a separate account for Muslim which does not contain swaps or interest. Forex trading without the involvement of swaps is permissible in Shariah.
Is Riba or Interest is forbidden?
Yes, in Islam, Riba or interest is strictly prohibited. Riba is considered a major sin in Islam. In Islam, any payment or credit in the form of interest is forbidden. For instance, if a person in need was to approach a Muslim for the loan, the Muslim is obliged to provide the loan without charging any interest on the loan.Islamic style of business and living is quite different from other religions. This difference is also evident from Islamic banking which does not involve any interest on business loans, housing or any other form of a loan or on saving accounts. Islamic banking transactions are processed using two major types of arrangements called Mudharabah and Musharakah.
What are Mudharabah and Musharakah?
A Mudharabah is a type of agreement which is beneficial for both parties. This agreement doesn’t contain any interest in the transaction. Instead, a bank and the depositor, enter into a profit-sharing arrangement. This way both parties share profit on the transactions according to the terms of the contract. These types of contracts are also called as a partnership. If the transaction fails to generate profit, the depositor is also liable for a portion of the losses.Musharakah is an Arabic origin word, which is always used for sharing something. In business and trade, this word means a partnership, which makes both parties liable to share profit and losses according to the agreement between them.