The forex market is a global decentralized or over-the-counter market where currencies are traded. This market determines the exchange rates for all currencies. Forex trading laws in Pakistan encompass all purchasing, selling, and exchanging currencies at current or fixed values.
Despite its massive scale, the forex market has relatively little regulation since there is no regulating body to monitor it 24 hours a day, seven days a week. Instead, various national bodies throughout the world monitor local forex trading and international markets and guarantee that all forex providers conform to particular requirements.
Forex trading laws in Pakistan
Contrary to common misconception, Forex trading in Pakistan as a resident of Pakistan is entirely lawful.
As Pakistan’s economy grows and changes, an increasing number of Pakistani businessmen are turning to the forex market for its near-limitless potential. Forex traders do not need licenses, especially if they are trading for themselves. It is the forex brokers, who must adhere to certain restrictions particularly in countries like Pakistan.
Brokers handle clients’ forex transactions by providing them a trading platform. Brokers generate money by trading forex in these ways. When a broker act as a dealer for its clients, it profits from the bid-ask spread.
Islamic laws on forex
There is no evident reason why Islam should prohibit online forex trading as long as there is no interest factor and trades are finished with some reasonable justification to predict a possibility of resultant financial benefit.
If the forex system includes leverage or margins, it is haram since it combines payment in advance and the brokerage charges swaps for each transaction held overnight.
Islam does not allow trading in haram assets such as options, futures, bonds, or mixed or haram shares. Forex trading laws in Pakistan is permissible in Islam since there is no element of interest in trading.
When traders retain long-term transactions on weekends, certain forex accounts have a limited interest in trading.
When you don’t know what you’re doing, forex trading can turn into gambling, which may happen in various ways. When forex traders do not adhere to a trading plan, they frequently wind-up gambling.
Forex trading law in Pakistan is one of the most contentious issues in Islamic law. Various ordinances and fatwas (Islamic judgments given by a generally recognized religious authority of Islam) have been issued on the subject to attain a common consensus.
Based on the following hadith, the majority of scholars agree that currency trading is permissible in the domain of Islam and has been practiced for years:
According to ‘Ubaadahibn al-Saamit (may Allah be pleased with him), the Prophet of Allah (peace be upon him) stated, “Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, salt for salt, like for like, same for same, hand to hand. If the types differ, sell whichever you choose as long as it is hand to hand.” 1587 (Muslim)
Regulated brokers vs unregulated brokers
Global regulatory authorities govern forex by establishing criteria that all brokers operating under their jurisdiction must follow. This contributes to ensuring that currency trading is ethical and fair for all parties involved.
Forex happens to be financially open and safe, and it follows the requirements set by its regulatory agencies. This is true. As previously indicated, the consensus on the cautious side is that 70% to 80% of all forex traders lose money, and this figure can rise as high as 90%!
Any type of trading, particularly forex trading in Pakistan, necessitates a significant commitment to learning how to trade and having a firm foundation of forex knowledge.
When a broker is unregulated, it indicates that there is no regulating agency or group of people watching over them. In other words, they may take your money and then disappear.
This is why you may come across listings of internet brokers labelled as scams or frauds. Unregulated or unlicensed brokers are prevalent, but they are not prohibited.
Regulated brokers are not guaranteed to treat you well, but they will face legal consequences if they breach the regulations. A regulated forex broker must, at the absolute least abide by the rules. You are secure against most of the non-trading risks if you choose a regulated broker. However, not all regulations are equally worthy because some regulating bodies are very strict and they are very cautious to protect against the rights of consumers. ASIC (Australia) and FCA (UK) are the two regulations that traders consider as top tiered and brokers regulated with any of these bodies will not manipulate against the traders. On the other hand, if a broker is regulated at an offshore location, it is considered least regulated broker and your rights are not as protected as in case of FCA or ASIC regulated brokers.
In Pakistan, futures and stocks brokers are only regulated while there is no authority to regulate a foreign forex broker. Currency dealers are licensed by State Bank of Pakistan. Although forex brokers are not regulated in Pakistan but if they are regulated abroad and abide by local financial laws, they have no hurdle to operate. Many foreign regulated brokers are operating in Pakistan and traders can easily start trading with them.
Global regulatory authorities govern forex by establishing criteria that all brokers operating under their jurisdiction must follow. These criteria include being registered and licensed with the regulating agency, conducting regular audits, disclosing specific service modifications to their clients, and more.
Legal investment in forex
Some forex brokers recently faced a crackdown by the government. Their websites were banned in Pakistan. The reason was dubious transactions and potentially a risk of money laundering. For futures traders, residents of Pakistan are allowed to invest in PMEX approved local brokers only. However, there is no such restriction for forex traders.
Banned terms in forex
While many industrialized nations enable their nationals to make money by trading in forex, other governments place various limitations on their residents. Belarus, Canada, China, India, Japan, Iran, Saudi Arabia, South Korea, and Turkey are just a few nations where traders should only use nationally regulated brokers.
According to forex trading laws in Pakistan, traders do not need licenses, especially if they are trading for themselves.
It is the forex brokers who must adhere to certain restrictions, notably in the United States. Every reputed forex broker in the world has a regulatory license.
Bottom line
The forex trading market is the decentralized, widely known financial market in today’s world. Because of its decentralization, it isn’t easy to centrally regulate it for the entire globe. In its beginning, forex market was known as a black market. When it was known as a black market, only anti-rules traders used to trade in the forex market. But after a short period, the forex regulators observe this exploited behavior of the forex market and felt a need to regulate and tighten the grip on the brokers and investors.
The parliament passes several laws for the regulation of the trading market. In these laws, the regulator’s duties have been justified, and the government ensures that the regulators enforce and regulate the trading market. This enforcement ensures that all the brokers, sellers, buyers, and banks operating in the forex market should abide by the rules and laws according to their country’s guidelines and regulations. The forex regulatory agencies have a broad range of powers to deal with those who do not operate in the market according to the laws and regulations. The bottom line is that after the regulations and laws passed by the government forex market is no more a black market. It has become a safe avenue for the investors to trade confidently and conveniently.