What are Shariah law, Islamic Swap-Free and Sukukf?
Let us guide you through the Islamic Banking.
Islamic Account and Shariah Law
Forex trading has opened up opportunities to all people regardless of race and creed.
As Muslims have joined the trade, companies involved in currency trading notably brokers saw it fit to offer services that would benefit them as well.
Just like any regular trader, they have the right to manage their own accounts or open a managed Islamic account in trading currencies and other financial instruments including the “Sukuk” or securities that offers fixed return on investments.
And that’s how the Islamic Forex trading accounts came to be.
Islamic accounts are also called swap free Forex trading accounts.
They are sometimes referred to as Shariah Forex accounts to signify that they are in accordance with the Islamic religious law.
This type of account is especially intended to Muslims as swaps go against their religious beliefs.
With an Islamic account, no swaps or roll over charges will be applied to trading positions overnight.
In other words, an Islamic Forex trading account is free from interest or swap charges and features zero up-front commissions without additional charges per trade.
What is the Shariah law?
The Shariah law guides Muslims in how they should lead their lives.
Shariah actually means “way” or “path to the water source.”
The law is based on Islamic principles which Muslims are expected to follow in the various aspect of their daily living from economics, banking, business and politics to family, hygiene and social issues.
When it concerns banking and finance, the Shariah law forbids all forms of interest.
Muslims usually do business via risk sharing and only in legal practices.
In an investment, for example, the bank and the customer share the risk on agreed terms and divide the profits or losses. Lending with interest is also not allowed in Islam.
For instance, an Islamic bank is not allowed to lend to other banks at an interest. Trading currencies and bonds bearing interest is also not permissible.
What is Sukukf?
Sukuk refers to a financial certificate that is similar to a bond.
These securities are based on the Islamic law which does not permit the charging of interest.
Their greatest benefit is seen in transforming the future cash flow of an asset into present cash flow.
Assets worldwide that comply with the Shariah law are valued at $500 billion growing at more than 10 percent annually.
It is estimated that 20 percent of banking customers in the Asia and the Gulf opt for an Islamic financial product more than a traditional one.
Shariah accounts for professionals
The Islamic Forex trading account is separate from the operations of stock markets. Compared to treasury bonds or other financial instruments, it provides a better return on investment.
This type of account possesses liquidity. It enables traders to easily withdraw money from investors within a specified period and even during emergency situations.
Shariah Forex accounts are best managed by professionals.
Muslims in the trade should consider getting professionals who have the necessary expertise and experience to maintain their accounts to reduce the risks and losses.
They should be knowledgeable enough to use the right tools on statistical analysis to achieve great results and profits amid the rising and falling of the currency markets.
There are some criteria you can consider in determining if you’re getting the right professional to handle your Islamic account.
How to calculate Swap Points?
Having trouble calculating “Swaps”?
Once you understand it it is very easy to do.
Here, we like to introduce 2 ways of calculating Swaps.
1. Standard Swap Calculation
You can use the following formula to calculate the swap points.
Swap = (One Point / Current Exchange Rate) * Trading Volume(in lot) * Swap Value(Points)
Here is an example of Swap Calculation using the above formula.
One Point: 0.00001
Account Base Currency: EUR
Currency Pair: EUR/USD
Current Exchange Rate: 1.0675 (EUR/USD)
Trading Volume in lot: 20 (One Standard Lot = 100,000 Units)
Short Swap Rate: 0.25
Swap Value = (0.00001 / 1.0675) * (2,000,000 * 0.25)
Swap Value is €4.68
2. Simplified Swap Calculation
As a “Simplified Swap Calculation” method, you can use the following formula to calculate swap points.
Trading Volume in lot * Long or Short Rate * Point Size
Here is an example of using the above formula.
1 lot buy EUR/USD
EUR/USD Point Size = 100,000 * 0.00001 = 1
Account Base Currency: USD
Long Swap Rate= -2.54
Swap Value = 1 * (-3.68) * 1
Swap Value is -2.54 USD
3. Swap Calculation for Gold and Silver
To calculate swap points for precious metals, you may use the following calculation formula.
Trading Volume in lot * Long or Short Rate * Point Size
1 lot “Buy” of Gold
Gold point size = 100 * 0.01 = 1
Account Base Currency: USD
Long Swap Rate = -5.42
Swap Value = 1 * (-2.17) * 1
Swap Value is -5,42 USD
- Swap Charge/Credit incurs every night around 00:00 am, but not often precisely on 00:00.
- If the result is negative, your account will be debited whereas if it is positive your account will be credited.
- “Swap Points” won’t incur if you don’t have an open position at the moment(around 00:00) of Swap, even if you had open positions for the whole day.
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