Islamic Finance واژهنامه for Traders
The عربی terms used throughout this hub — defined precisely, with their relevance to forex and trading.
Riba
Any guaranteed return on lent money, or compensation for the time value of money. The most universally prohibited element in Islamic finance. Two subtypes: riba al-nasiah (interest on delayed payment) and riba al-fadl (excess in commodity exchange). Forex overnight swaps fall under riba al-nasiah.
غرر
Excessive uncertainty in a contract — uncertainty about the existence of the subject matter, the price, the delivery, or the counterparty's obligations. Minor gharar is tolerated (you can خرید fish that haven't been caught yet from a fisherman in some interpretations). Major gharar invalidates a contract. CFDs sit in active debate because the underlying is referenced rather than owned.
Qimar / Maysir
Pure speculation where the outcome depends on chance, with no productive economic basis. Scholars distinguish this from analytical trading with risk management. The line: trading with a written strategy, position sizing, and risk control is commerce; revenge trading on hunches with maximum leverage is qimar.
Mubah
An action that is permissible — neither encouraged nor discouraged. The default category. معامله, commerce, partnership, and currency exchange are all classically mubah.
Mushtabihat
Matters where the halal/haram ruling is unclear — where scholars genuinely disagree or where the structure is novel. The prophetic guidance: "Whoever leaves what is doubtful for what is not, has protected his religion." Many derivative instruments fall here.
Bai' al-sarf
The classical Islamic contract for exchanging one currency for another. Permissible with conditions: hand-to-hand exchange, no deferred settlement, no interest. The historical basis used to argue that spot forex is permissible if those conditions are preserved.
Taqabud
The condition that both parties to a currency exchange must take possession at the moment of contract. In modern interpretation, electronic settlement is widely accepted as the equivalent — the trade hits your account immediately. T+2 interbank settlement is debated.
حلال
Permitted by Islamic law. The opposite of haram. Applies to actions, foods, contracts, and earnings. In finance: a transaction structured in compliance with Shariah principles.
حرام
Prohibited by Islamic law. In finance: any contract involving riba, major gharar, qimar, or dealing with haram industries (pork, alcohol, weapons for unjust use, conventional gambling, conventional insurance, etc.).
Makruh
Discouraged but not forbidden. A category between halal and haram. Some scholars place certain forms of speculation here — not strictly prohibited, but to be avoided where possible.
Fatwa
A formal legal opinion issued by a qualified scholar (mufti) on a specific matter. Not law in the secular sense — it is the scholar's judgment based on Qur'an, hadith, and jurisprudential method. Different scholars can issue different fatwas on the same question.
زکات
The obligatory annual charity, one of the five pillars of Islam. 2.5% of wealth above the nisab, held for one lunar year. Applies to trading capital and realized gains. See our zakat guide.
Nisab
The minimum wealth threshold above which zakat becomes obligatory. Benchmarked to the value of either 85g of gold (بیشتر conservative threshold) or 595g of silver (بیشتر inclusive). Most contemporary scholars use the silver benchmark for personal zakat.
Hawl
The requirement that wealth must be held above the nisab for a full lunar year before zakat applies. Active traders typically pick a fixed annual date (often the beginning of Ramadan) and calculate based on the balance on that date, provided the aggregate remained above nisab through the year.
Sukuk
Islamic finance equivalent of bonds — but structured as ownership certificates in real assets rather than as debt instruments. Returns come from profit-sharing or rental, not interest. Mentioned because sukuk are the halal alternative for fixed-income investors who would otherwise hold conventional bonds.
Murabaha
A sale where the seller discloses the cost of the goods plus an agreed profit margin. Used in Islamic banking as a halal substitute for interest-based lending. Not directly relevant to forex trading but commonly encountered in Islamic finance discussions.
Mudaraba
A partnership where one party provides capital and the other provides labor or expertise. Profits are split per pre-agreed ratio. Losses are borne by the capital provider unless the worker is negligent. The Islamic model for fund management.
AAOIFI
Bahrain-based standard-setting body for Islamic finance. Publishes Shariah standards that are widely referenced by Islamic banks, sukuk issuers, and Shariah supervisory boards. Their standards on currency trading (FAS 1 and related) are commonly cited in scholarly discussions of forex.
Madhhab
The four main Sunni schools (Hanafi, Maliki, Shafi'i, Hanbali) and the Shia schools (Ja'fari being the largest). Each has its own methodological approach to deriving rulings. On contemporary financial questions, contemporary scholars within each school have produced different rulings. Knowing your madhhab is the starting point for determining your applicable opinion on forex.
Fiqh
Islamic jurisprudence — the human discipline of deriving practical rulings from the primary sources (Qur'an and Sunnah). "Fiqh al-muamalat" is the branch dealing with financial transactions. Distinct from Shariah itself, which is the divine source.
Ijtihad
The process by which qualified scholars derive new rulings on matters not directly addressed in classical sources. Modern financial instruments require ijtihad because they did not exist when the classical fiqh literature was written. The variation in scholarly opinions on forex reflects different ijtihad on the same novel structure.