Is Forex trading allowed in Islam?

The Shar'ee principle in regard to business transactions is that in a situation where both exchanges are specific commodities (i.e. both have the potential of being a sale commodity (مبيع)), then in order for the transaction to be valid, at least one exchange should be received at the time of the transaction (though the other item be deferred). However, if a specific commodity is being sold in exchange of an unspecific commodity (e.g. an item being sold in exchange of money) then in order for the transaction to be valid, at least possession of the specific commodity should be taken.

As far as foreign currencies are concerned, both are regarded as unspecific commodities. Hence, both or at least one will have to be exchanged on the spot. If both are deferred, it will not be permissible. Hence, in the case of online forex, since both exchanges are deferred, this transaction is invalid and impermissible in Islam.

Furthermore, it appears that this type of trading is “imaginary” and figurative, because the trader does not own nor does he have at any time possession of the foreign currency that he is trading.

And Allah Ta'ala (الله تعالى) knows best.