Why open an Islamic trading account?

More and more brokers nowadays offer Islamic accounts that meet the specific constraints of this religion. In this way, they broaden the target clientele by ensuring that the beliefs and rules of certain categories of investors are respected. But what distinguishes Islamic accounts in trading?

Islamic Trading Account: Sharia-compliantTo

better understand Islamic trading accounts, it is necessary to rely on Sharia or Islamic law. It provides for certain rules applying to the banking and financial activities of persons belonging to this religion. Sharia law prohibits, inter alia, the collection of fees or interest on loans. The prohibition remains valid whether it is a fixed or variable remuneration, it should be noted that in 2014, financial institutions that offer sharia-compliant services offering nearly 1% of assets worldwide, for a value of $2 billion. In any case, not all Muslims comply with Sharia law. And according to Ernst & Young, Islamic assets constitute only a tiny portion of their assets. Nevertheless, a significant increase has been observed in recent years, until a rate of about 20% is expected by 2018

. the specificities of Islamic trading accounts

First of all, it should be recalled that Sharia law is against fees and interest on loans. However, with a “classic” trading account, interest is added to the broker’s accounts when positions remain open for more than 24 hours. Then, they are applied daily. It is then possible that the broker will pay interest. It also happens that the trader has the debit account. The amount concerned then corresponds to a renewal cost. This charge inevitably affects the results of traders who choose not to keep their positions open overnight.Things then turn out differently with an Islamic trading account. First, no interest is charged throughout the term of the contract. There can therefore be no contract renewal after one day of trading. Brokers (but also Islamic laws) have adapted, offering the possibility for Muslims to trade without going against Sharia law. More and more brokers then offer accounts without swaps, but various conditions apply. In this way, traders can bet according to their availability and even take out loans (but without underlying interest), so there is no interest or commission. The renewal rate is also non-existent (equivalent to 0%). As for the broker’s income, it comes exclusively from spreads. For some, the latter are higher and other fees are applied. But it is also possible that there may be no change at this level (similar spread and no additional fees). It is also important to mention brokers who offer their clients to make “hibahs” or voluntary donations, inviting them to share their earnings, one thing is certain, given the increasing number of Muslim traders, brokers are adapting. There are several operators that offer Islamic trading accounts, such as XTB and eToro in Forex but also Binary Bank for binary options.