Open Sesame - FX Brokers Welcome Swap-Free Traders without the Baggage

Financial traders who adhere to faiths which prohibit the use of interest or usury are flocking to the vibrant FX markets as brokers continue to enhance their product offerings, in order to welcome the trading style. Forex Magnates has learned that currency brokers have seen an influx of traders enter the FX trading arena as participants are allowed to practise their faith, yet trade at the same time.

There is a rise in client numbers for users looking for swap-free accounts holding membership of the Islamic faith group, who were previously shunned due to the threat of overnight swaps arbitrage and difficulties in managing client order flow by providers.

A spokesperson for Pepperstone, an Australian-based broker explains: “We have always have had a demand for Islamic accounts but due to the complexity of designing it within MT4 we had not introduced it.”

Furthermore, the formidable carry trade has been behind the earnings of swaps on certain high yielding currencies, a notion that was exploited through the use of swap-free accounts. However, technology vendors who support the development of retail brokers have bounced back with a solution that kills two birds with one stone.

The Solution

Advancements in technology have enabled plugins that sit on top of the core Trading Platform to enhance the terminal, giving the ability to charge a set fee depending on the brokers conditions that compensates the required overnight swap charge, (similar to a commission charge) yet at the same time allow genuine religious investors to fulfil their religious obligations.

Ori Hazan, VP of Customer Success at Panda Trading Systems, commented about the firm's role in developing solutions for brokers: “We have been working on a number of projects relating to rectifying the numerous issues brokers face when offering swap-free accounts, our solution, that is live in the market, enables brokers to manage their operations effectively.”

Panda Trading Systems, a leading provider of technology solutions to financial services firms, has enhanced a core plugin in its inventory enabling a flexible amount to be charged on clients' accounts, furthermore the charge can be applied to certain crosses. Add-ons, such as the automatic charge plugin, enable brokers to onboard clients who require swap-free accounts, however they now remain confident that if traders misuse the trading account, the broker will not end up in difficulty. The charge prevents brokers lying flat on their feet due to traders adopting an arbitrage strategy and collecting income through swap rates.

Pepperstone has been using the plugin developed by Panda, their representative added: “What we have found is that there has been a huge increase in accounts coming from Islamic traders since we introduced the account type.”

Swap-free accounts have been available to traders since the e-trading phenomena in the retail FX market took shape, however due to various factors affecting the way the product can be managed effectively, brokers have been vigilant in the way they provide the offering.

Jaswinder Kaler, a financial services professional from India, argues that the rise in swap-free traders isn't only due to available technology, he explained to Forex Magnates: “Forex trading is ever evolving, both from the client and broker side, I believe a number of new FX brokers have entered the space and naturally require solutions to service this segment, all eyes are on Asia where a significant population of Muslim investors abode.”

FX Trading & Muslim Traders

FX trading has positioned itself as a common investment tool among people of the Islamic faith residing in emerging market countries, the global nature of FX broking has meant that investors from across the world can participate and access the world's most liquid asset class through having an internet connection. FX trading is popular in countries with a majority of residents who classify themselves as Muslim, including, Pakistan, Indonesia, Malaysia and Saudi Arabia (MENA).

The popularity of FX trading in Malaysia triggered a witch-hunt by leaders of the Islamic faith who deemed the investment approach as inconsistent with religious teachings, the National Fatwa Council issued a notification on the matter after carrying out research.

FX trading is questioned by religious scholars as it opens up the usury and speculative discussion points, both aspects debatable in the religion.

The availability of swap-free accounts is promising for traders in emerging market countries with sizeable Muslim populations.

However, Arek Okrasa, Chief-analyst at London-Trader, a UK-based training consultancy firm, sees opportunities for his vast British-Muslim students who are looking for trading accounts that meet their spiritual requirements.