What is a Swap?

The event of leaving open positions on the foreign exchange market for more than 24 hours requires the payment of special fees, are called SWAPs. These fees are a kind of interest rate and, therefore, they are problematic for Muslim traders who follow Shariah Law as it prohibits certain financial transactions including those which include the accumulation of interest.

Because a Swap can be seen as a type of interest, a fee for the service the broker is providing you, it creates a problem for Muslim traders following Sharia law, which forbids certain financial transactions, primarily those accumulating interest.

To solve this issue, brokers offer their Islamic finance investors an ‘Islamic account’. This account type is similar to a regular one, with one key difference; it is not subjected to any special fees or interest, which sits well with the finance principles of Sharia law.

The Sharia law dictates that the lender must share in the borrower’s risk. In non-Islamic accounts, the risk falls exclusively on the lender. In Islamic eyes, this is considered exploitative and wasteful.

AvaTrade is one of the brokers that has introduced its Islamic trading account, fully in line with Islam rules. Customers with an Islamic trading account will not be charged daily swaps. The swap fees are fully replaced in the MT4 platform by daily administration fees on all Forex trading products. Read our entire AvaTrade Review

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