What is a Swap Free Trading Account & Should You Use One?

23 September 2022

Forex trading, also known as FX and foreign exchange trading, is the purchase and sale of different currencies in order to capitalize on their fluctuations in value. This market was once completely dominated by banks and other multinational financial institutions, but the internet has changed the way the foreign exchange market works.

Gone are the days when data is transmitted via phone and cable to share the latest on trading pairs between Europe and the United States. Now, each currency’s exact value can be pinpointed at any given moment by anyone with access to the internet and the entire market is a complex network of banking software transferring digital money all around the world.

This has taken foreign exchange trading from a specialist market only available to banks and financiers to an open market offering individuals the opportunity to make some money. The foreign exchange market is non-centralized, meaning that each country is responsible for devising and enforcing its own legislation and regulations.

This means that there are fewer third parties and brokers involved, allowing individuals to trade with minimal fees, costs, and commissions to be paid. The market is also fast-moving and liquid – ideal for anyone who might be interested in trading but not be able to commit to it full time.

The global phenomenon of forex trading

There are some specific centers for forex trading, including London, Hong Kong, Tokyo, and New York. However, traders can operate from anywhere in the world, so long as they have an internet connection.

Forex traders will usually use an online broker to manage their sales and purchases and alert them to any significant movement in currency values. Traders can choose the type of account that suits them best and automate as much or as little of the process as they want to.

The forex market is open twenty-four hours a day, Monday to Friday, which makes it great for anyone who wants to trade in markets in different time zones. It does also mean that you can have the weekend off, although most traders will still be keeping track of the news and staying alert for anything that might affect currency performance.

Traders can operate in any market that they choose, buying and selling currency pairs from wherever they think there is money to be made. However, there are some religious issues with forex trading with specific trading accounts designed to accommodate them.

What is a swap free account?

Forex relies on buying and selling, usually a high volume, to make the most of the small changes in value between currency pairs. However, this can cause problems for Muslim traders who are not allowed by their religion to make money from usury or gambling and forex trading could be seen as a cross between the two.

If a trader buys a currency that has a higher interest rate than the currency they are selling, they will earn interest which is usually paid via their broker and can vary from a few dollars to thousands over the course of a single night. If a currency has a higher interest rate at the point it is sold than the other currency in the pair, the trader will deduct the difference from the value of the trade.

Many Muslim scholars believe that ‘swap free’ trading in currencies avoids the elements that are ‘haram’ or forbidden. The ‘swap’ is the fee paid for holding a position overnight, and this is widely considered to be a form of interest.

Swap free accounts allow Muslim investors a commission-free way to hold positions overnight whereby they neither pay nor receive the ‘swap’. By settling trades on a ‘swap free’ basis, the element of usury is all but eliminated, so these accounts are used by those that want to maintain their religious standards while trading.

Blackbull Markets offers Islamic account trading for any investors that want to take advantage of these swap free accounts and enjoy the opportunities offered by the forex market. However, these accounts aren’t only reserved for Muslim investors as they can offer benefits to other forex speculators.

Because swap free accounts make money purely on the basis of exchanging currencies, without any interest being paid, it also removes the element of gambling that is usually associated with trading. Gambling is also forbidden in Islamic law, but there are other religious sects that take a dim view of gambling, and a swap free account is the perfect way to accommodate such restrictions.

Whatever your situation, you can find a forex trading account that will suit you, from allowing you to be hands- on with your trades to a fully automated set-up that will allow you to pre-empt market changes and set trades accordingly.

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