This is an independent working paper of asatizah and Islamic finance practitioners in Singapore. Views in this article are solely from the authors. No responsibility should be attributed to any non-individual entity.
Currently, there are many unregulated FOREX advertisements largely in the social media promising high returns or get-rich-quick schemes ranging from trading seminars, trading algorithm and online trading platforms (largely unregulated platforms) and binary options. Many of these advertisements, added with a perceived figure of success (i.e. big houses, luxury goods and cars, etc.) seem to suggest that it is easy to earn such returns. As a result, there have been public queries concerning the Shariah permissibility of FOREX trading as a mean to earn income.
This paper, henceforth, is drafted in consultation with industry players, to provide an independent advice to the Muslim community in Singapore. As Muslims, we should care about the halal status of our food consumption as well as our sources of income, as emphasized by our Prophet  ﷺ.
FOREX – Modus Operandi
FOREX as a transaction can be of two (2) types:
1. Genuine Exchange or Service
• For instance, if a product or service is to be purchased in Malaysian Ringgit (i.e. a Singaporean visiting Malaysia), a buyer from Singapore would be required to change the local Singapore currency to Malaysia Ringgit. Such purpose promotes tourism.
• Genuine Service means to hedge against unwanted exposure to currency market risk, price fluctuations, buying into tax-haven countries amid economic uncertainties, etc., without any motive to earn extra income. This largely applies to businesses.
2. Speculative Zero-Sum Game (i.e. FOREX Trading)
• Where calculated assumptions and speculation are made to earn profit on factors (i.e. news, government reports, technical evaluations, etc.) determining the value of currencies; buying it before its value rises, selling it before its value falls.
FOREX trading should not be confused with foreign currency exchange. FOREX trading refers to buying and selling of currencies based on their price movements, with the intention of making profit rather than acquiring a particular currency for a specific purpose such as exchanging Singapore Dollar to Malaysian Ringgit for expenses while shopping in Malaysia.
FOREX traders earn income via electronic trading platforms using currency pairs. For example, GBP/USD is a currency pair that involves the Great British pound and the US dollar. In this pair, a person will be buying pound sterling by selling US dollars.
• The first currency (i.e. GBP) listed in a forex pair is called the base currency.
• The second currency (i.e. USD) is called the quote currency. The price of a forex pair is how much one unit of the base currency is worth in the quote currency.
If GBP/USD is trading at 1.35, then one-pound sterling is worth 1.35 US dollars. If the pound sterling rises (or appreciates) against the US dollar, then a single pound sterling will be worth more US dollars. As an illustration if the GBP/USD subsequently trades at 1.40 (since the strengthening or appreciation of the GBP will mean that more USD is required for every pound sterling), the reverse exchange of the 100-pound sterling (bought at 135 US dollars earlier) will now generate more US dollars (specifically 140 US dollars).
The rise and fall of the currency pair thus creates margin differences giving rise to potential income, which in the nominal illustration above would be 5 US dollars (USD140 – USD135). The exchange rate therefore is like a price which fluctuates based on supply and demand and in turn depends on various factors. The income potential will obviously commensurate with the amount being invested – the higher the amount exchanged, the higher the income generated. Likewise, there is a higher chance of potentially losing the capital.
• If traders speculate the base currency in a pair is likely to strengthen against the quote currency, they can buy the pair (i.e. going long).
• If traders speculate it will weaken, they can sell the pair (i.e. going short).
Shariah Principles on Currency Exchange
The ruling of Currency Exchange or Foreign Currency Exchange (bai`al-sarf) is generally permissible based on the Sunnah narrated by “Ubadah bin As-Samit:
The Allah’s Messenger (ﷺ) forbade selling gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates”‘- one of them said: ‘salt for salt,”‘ but the other did not say it-“unless it was like for like, hand to hand. And he commanded us to sell gold for silver and silver for gold, and wheat for barley and barley for wheat, and to hand, however we wanted.”‘ And one of them said: “Whoever gives more or ask for more has engaged in Riba.”‘
– Sunan an-Nasa’I, Vol. 5, Book 44, Hadith 4564
The above essential ruling includes our modern-day currency (i.e. fiat money) as it shares the same legislative reasoning (‘illatul Hukm) as gold and silver and is used as a medium of exchange, store of value, and unit of account. Therefore, all Foreign Currency Exchange must observe the following essential condition:
• Like for Like (مِثْلاً بِمِثْلٍ) – If the exchanged currencies are the same type (e.g. SGD for SGD), the transaction shall be done: (1) on the spot (i.e. without deferment) and (2) at par value. In practice, this is sometimes done in Singapore during the festive season of Eid ul Fitr, where new banknotes may be obtained at the bank counter in exchange of the old notes.
• Hand to hand (يَدًا بِيَدٍ) – If the exchanged currencies are of different types (e.g. SGD for USD), the transaction shall be done: (1) on the spot and (2) at the prevailing currency rate or any mutually agreed rate at the time of the execution of the contract (i.e. foreign currency exchange).
||1. On the Spot Delivery
2. Par Value
|1. On the Spot Delivery
2. Prevailing rate
||1. On the Spot Delivery
2. Prevailing rate
|1. On the Spot Delivery
2. Par Value
In a nutshell, any currency exchange or foreign currency exchange practice is permissible if it observes the Shariah condition as stated above. This practice may include the following services:
1. Ordinary money changer service where the exchange is done on the spot and at the prevailing currency rate.
2. Exchanging old banknotes or coins for new banknotes or coins at the bank counter where the exchange is done on the spot and at par value.
Continue to read Part Two here.
The authors are local asatizah and/or Islamic finance practitioners working in Singapore:
• Mustafiyah Binte Kadir Sahib works in Jamiyah Education Centre as a contract lecturer and is currently doing her doctorate in Islamic studies (Shariah) with University of Malaya. She is certified under ARS and can be reached at email@example.com.
• Norsuria Jani works as a legal and compliance officer in the Bancassurance industry in Singapore. She holds a Masters in Islamic Banking & Finance from IIUM serves as an advisor to Financial Shariah Advisory & Consultancy (“FSAC”) affiliated to the Singapore Islamic Scholars and Religious Teachers Association (PERGAS). She is certified under ARS and can be reached at firstname.lastname@example.org.
• Shabana M. Hasan works as an Islamic finance consultant in International Shari’ah Research Academy for Islamic Finance (Malaysia). She completed an MSc in Islamic finance (with distinction) from the University of Durham, United Kingdom. She can be reached at email@example.com.
• Shahirah Mohamed Salleh studied international finance from University of Amsterdam and has a Masters in Islamic Banking & Finance from IIUM. She previously did Shariah advisory and consulting in Singapore. She can be contacted at firstname.lastname@example.org.
• Nur Muhammad Sesth is a Shariah analyst in Bank Negara Malaysia and a secretariat to BNM Shariah Advisory Council. He graduated from Kuwait University and INCEIF and teaches Islamic subjects as a part-time lecturer in Andalus Corporation Ltd in Singapore. He can be contacted at email@example.com.
• Hikmatullah Babu Sahib is currently a member of Syariah Advisory Committee of Standard Chartered Saadiq Berhad. He previously served in the Kulliyyah of Islamic Revealed Knowledge and Human Sciences, International Islamic University Malaysia (IIUM) as an Assistant Professor. He can be reached at firstname.lastname@example.org.
• Zul Hakim Jumat is a researcher at College of Islamic Studies, Hamad Bin Khalifa University and currently doing his doctorate in Islamic finance and economy. He holds a bachelor from Kuwait University majoring in Usul Fiqh and minoring in Economics. He can be reached at email@example.com.
• Sani Hamid is a director, Wealth Management (Economy & Strategy) and head of Islamic Wealth Advisory (FAiWA) division within Financial Alliance Pte Ltd. He has more than 20 years’ experience in the finance industry. He studied Islamic finance from IIUM and can be reached at firstname.lastname@example.org.
• Hashim Bafadhal is a founder of Ascent Islamic (Manulife) doing Islamic financial planning for the Singapore community. He graduated from NTU and is currently pursuing his Masters in INCEIF. He can be reached at email@example.com.
• Daniel Tan is currently an auditor in the financial industry in Singapore. He graduated with a Masters in Islamic Finance Practice from INCEIF with experience in Shariah auditing. He can be reached at firstname.lastname@example.org.
• Muhammad Nuzaihan Bin Hamdan is an Associate Director at CIMB Bank Berhad, Singapore Branch. He graduated from Kuwait University and Loughborough University. He is certified under ARS and teaches muamallat and Fiqh Mu’amalat in various mosques and institutions in Singapore. He can be contacted at email@example.com.
• Zaky Jailani is currently head of Islamic Product and Business Development at RHB Singapore. He graduated with a business degree from RMIT University, a diploma in Islamic Studies from IIUM and also has an MSc in Islamic Finance from INCEIF. He structures Islamic financial products and can be contacted at firstname.lastname@example.org.
• Mohamad Rizuan Pathie is currently a Partner at Dentons Rodyk & Davidson LLP. He has a graduate law degree from NUS and holds a Chartered Islamic Finance designation from INCEIF. He can be reached at email@example.com.
• Haron Masagoes Hassan is currently deputy head and internal shariah advisor for the Islamic Wealth Advisory (FAiWA) division within Financial Alliance Pte Ltd. He is a graduate of IIUM and is certified under ARS. He can be reached at firstname.lastname@example.org.
• Abdul Rahman BMH is a managing director of Abdul Rahman Law Corporation in Singapore. He handles Shariah-compliant project financing, wasiat & hibah and drafting of Shariah-compliant wills. He studied law from NUS and can be contacted at email@example.com.
• Umar Munshi is a Managing Director of EthisCrowd, an award-winning Real Estate Islamic Crowdfunding platform. He is also an Islamica500 Islamic Economy influencer and the founding Chairman of the IslamicFintechAlliance.com. He studied business in NUS and can be reached at firstname.lastname@example.org.
• Shahrizan Mansor is currently working as a business analyst in Financial Markets with Standard Chartered Bank. He previously did debt collection and recovery which includes Islamic financial products with another bank in Singapore. He is a student in PERGAS and can be reached at email@example.com.
• Fazrihan Duriat is a Shariah risk manager in Maybank Singapore and serves as an advisor to the Islamic Business & Finance Society of SMU and a member of the Finance & Investment Committee of AMP. He is certified under ARS and can be reached at firstname.lastname@example.org.
 Details of authors at the last section.
 The Prophet (ﷺ) said, “Allah the Almighty is Good and accepts only that which is good. And verily Allah has commanded the believers to do that which He has commanded the Messengers. So, the Almighty has said: “O (you) Messengers! Eat of the tayyibat [all kinds of halal (legal) foods], and perform righteous deeds.” [23:51] and the Almighty has said: “O you who believe! Eat of the lawful things that We have provided you.” [2:172]” Then he (ﷺ) mentioned [the case] of a man who, having journeyed far, is dishevelled and dusty, and who spreads out his hands to the sky saying “O Lord! O Lord!,” while his food is haram (unlawful), his drink is haram, his clothing is haram, and he has been. nourished with haram, so how can [his supplication] be answered?” (Sahih Muslim Hadith No. 1015). In another hadith, Prophet (ﷺ) said “Seeking halal earning is a duty after the fardu ain. In other words working to earn a halal living is itself a religious obligation second in importance after the primary religious obligations like prayers, fasting and hajj”.
 In modern context, different methods are adopted to monitor currency fluctuations for purposes of FOREX trading, including trend following, artificial intelligence and nonlinear algorithms.
 Traders rely on trendlines, chart patterns, indicators and market times frames to predict how the market function.
 Similar rulings are found in major corpus of hadith. For example, Ibn Majah Vol. 3, Book 12, Hadith 2255 (Book 12, Hadith 2340), Sahih al-Bukhari 2175 (Book 34, Hadith 125), Sunan an-Nasa’i 4449 (Book 44, Hadith 1) & Sunan an-Nasa’i 4558 (Book 44, Hadith 110), Muwatta Book 31, Hadith 47 (Book 31, Hadith 1339), Sunan Abi Dawud 3348 (Book 23, Hadith 23), Sahih Muslim (Book 10, Hadith 3848) and Jami` at-Tirmidhi 1243 (Book 14, Hadith 43)