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I realise a LOT of us - meaning you good people : ) – are confused about CFD’s and forex and stocks and gold and trading in general. What are we actually trading?

THREAD

First, you MUST know first what a CFD is.

A Contract for Difference – this is a DERIVATIVE !!!

It is a BET – it is taking a position or bet that the price of SOMETHING will rise or fall. You are NOT BUYING they underlying.
A CFD can be on anything – on the price of gold, oil, stocks, forex, or rainy days in April.

EXECUTING A CFD on Gold

Let’s say gold price is $1600, and you think it will rise. You can buy a CFD on gold at 1600. You DO NOT PAY $1600 to buy this CFD!!!!!!! The broker will require some form of margin to hold the position, however.

Now if gold rises to 1700, you can close out and sell the CFD, but you DO NOT RECEIVE $1700 – you receive the price difference ($100) times by the size of your position.

Brokers offer leverage, so you can take big exposures and more risks.

If the price falls, of course, you lose money.

Compare this to ACTUALLY BUYING GOLD:

You do NOT go to a retail broker – you find someone who actually sells gold. You then order a real amount of gold, and pay IN FULL for it. If you buy 5 ounces, you pay 5x1600 = $9,000 for it.

Now you hold it, and if the price rises you can self for profit. You OWN this gold.

Now let’s look at CFD on Forex pairs

Let’s say GBPUSD is 1.20, you think it will rise, you buy a CFD position, and choose your lot size. You pay a margin only. With leverage, you can take a

a large position with only a few dollars at risk.

If GBPUSD rate now rises to 1.25, you can close out and make a profit. If it falls, you can sell and make a loss, or you can do nothing, hold on like an idiot, until it falls even more and then you will make a bigger loss.

Compare this to actually trading currency
You MUST HAVE capital. You need a LOT of capital. For example, you have $100,000 and you think the GBPUSD rate will rise from current price of 1.20 (ie the USD will weaken against GBP). So you must sell your $100,000 and buy GBP with it.

You can buy 100k / 1.20 = £83,333

Now you hold on to this GBP, and wait for the GBPUSD rate to rise. If it rises to 1.25, then you sell your £83,333 for USD at 1.25 which is $104,167.

Now, you have made just over $4,000 in genuine currency trading. This is Halal and

and permissible according to all scholars that I know.

However, if you do the same thing with CFD, ie buy GBPUSD at 1.20 and sell at 1.25, this is just taking a position on the price of GBPUSD. This is a DERIVATIVE – it is a pure bet. This is not permissible according to every

every opinion I have heard. And this is the correct opinion.

If you trade retail forex, it is ALMOST CERTAIN your broker is letting you trade in CFD’s ONLY. Ask your broker!!

If there is leverage, this is a derivative.

If there is margin, this is not an outright purchase for cash payment of the underlying.

If you buy a forex lot of $100,000 and you DO NOT pay $100,000 in cash to your broker, this is a CFD / derivative.

What else? Options

These are derivatives, and in the retail market, I know of no scholars who permit this – and they are correct.
Can you trade in gold, silver, oil, wheat ? The answer is YES, as long as you buy the thing with cash and pay for it in full.

If you do retail trading – you are likely NOT DOING THIS – you are trading CFD on gold, oil etc

Stocks – you can trade stocks as long as they pass screening to be halal first – firstly they must have halal main business activity. Second, they must pass financial screening

screening ratios, that limits the amount of debt and interest they can have in their operations and balance sheets. If they pass this screening, you can then trade these stocks.

But make sure you are NOT trading CFD on these stocks !!

Fractional share trading is now a thing, and as long as you buy a fractional stock, and no CFD, and no leverage, then that should be ok. Some brokers do offer this now, I have heard.

What else?

Of course - other derivatives like swaps, options, forwards, futures – all are impermissible in the retail space.

What is confusing is that these derivatives ARE permissible, if structured properly - they CAN be Shariah compliant in the international markets

markets between institutions and Islamic banks etc.

This is all I can think of at this minute ...

Any other questions - please ask

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