July 22, 2024

Swap and swap-free Forex Islamic Accounts

LQDFX news blog: Swap and swap-free Forex Islamic Accounts

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Swap is the exchange “interest” or “premium” charged to a trader or earned on a daily basis for any trades carried (rollover) from day to day. It’s the fee for transferring an open position overnight. Swap may be both positive and negative.

The swap payment is based on the interest rate differential between the two currencies in a currency pair on which the trade position is rolled over to the next trading day. The swap is positive if the trader has a long position on the currency with the higher interest rate. On the contrary, it is negative when the trader is short on the higher yielding currency (or long on the lower yielding currency).

You can find more about Swap in our Courses, Beginners Course, Basic Forex Terms.

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Why Forex Islamic accounts are swap-free?  

Sharia law, forming part of the Islamic tradition, expects that Muslims follow the Islamic principles in various aspects of their everyday life, including banking and finance. So, Islam does not allow lending with interest, like all forms of interest.

Therefore, swaps go against Muslims’ religious beliefs. Thus, to abide by the religious law of Islam, traders of Islamic belief are not allowed to pay interest/swaps. That’s why no swaps apply to trading positions overnight.

LQDFX offers the Islamic Account, which mirrors the Gold account in all aspects, from spreads to lot size restrictions. However, the key difference with the Islamic account is that no swaps apply at rollover times.

Sources: Wikipedia, LQDFX

PLEASE NOTE The information above is not investment advice.