The world of finance is changing, and one of the key drivers of this change is the growth of Islamic investment. As more and more people across the globe seek financial services that align with their religious beliefs, the demand for Islamic finance is on the rise. This article delves into the concept of Islamic investment Australia, exploring what it is, how it works, and why it’s becoming increasingly popular.
Table of Contents
What is a Islamic Account?
Islamic investment, also known as Shariah-compliant investment or Islamic finance, is a form of investing that adheres to the principles of Islamic law, or Shariah. This unique form of investment is designed to cater to the financial needs and beliefs of the Muslim community. Yet, its ethical and sustainable approach has also attracted non-Muslim investors.
Key Principles of Islamic Investment
Islamic investment operates under two fundamental principles:
- Profit and Loss Sharing: Instead of charging interest, which is prohibited under Islamic law, both the lender and the borrower share in the profits or losses of the investment.
- Prohibition of Speculative Behaviour: Speculation or gambling, known as maisir, is not allowed. Investments need to be backed by tangible assets, and uncertainty or ambiguity (gharar) is also prohibited.
The Rise of Islamic Investment in Australia
In Australia, the Islamic finance industry is growing rapidly. According to the 2021 ABS Census, there are over 813,000 Australians who identify as Muslim, making up 3.2% of the population. Although, only an estimated 20,000 currently engage in Islamic investing, indicating a significant potential for growth.
Why is Islamic Investment Growing in Australia?
The growth of Islamic investment in Australia can be attributed to several factors:
- Increasing Muslim Population: As the Muslim population in Australia increases, so does the demand for Shariah-compliant financial products and services.
- Ethical Investment: Islamic investment aligns with the principles of ethical investing. It promotes social welfare and discourages harmful practices, attracting not only Muslim investors but also those seeking ethical investment options.
- Regulatory Support: The Australian government and regulatory bodies have been supportive of the development of the Islamic finance industry, recognising its potential to contribute to the country’s economic growth.
Islamic Investment Options in Australia
In Australia, various Islamic investment options are available. These include Islamic savings accounts, Islamic home loans, and Islamic investment funds.
Islamic Savings Accounts
An Islamic savings account is a type of account that operates without charging or paying interest (riba). Instead of interest, banks use a system of profit sharing to provide a return to their customers.
Islamic Home Loans
Islamic home loans, also known as Murabaha or Ijara home loans, are structured differently from conventional loans. Instead of charging interest, the bank buys the property and sells it to the borrower at a fixed profit, which is then paid back in instalments.
Islamic Investment Funds
Islamic investment funds operate under strict Shariah guidelines. They only invest in Shariah-compliant businesses, excluding those involved in activities such as alcohol, gambling, pork, and interest-based financial services.
Day Trading in Islamic Accounts
In the world of trading, there are three main types of strategies that traders use: day trading, scalping, and swing trading. When day trading, positions are open and closed within the same trading day. This has the advantage of avoiding overnight fees and interest rates, even for non-Islamic trading accounts.
However, traders who use Islamic accounts have an added advantage. If they open a position in the morning and it starts making a profit by the end of the day, they can hold onto it overnight without worrying about violating Islamic financial principles. In contrast, traders with non-Islamic accounts would have to close the position to avoid paying interest rates.
Using a non-Islamic account also increases the risk of engaging in haram trading activities (activities prohibited by Islamic law).
Scalping in Islamic Accounts
Scalping is a trading style that involves opening and closing positions quickly, in a few minutes or even seconds. Traders who use this style are called scalpers and their goal is to open many small positions and earn a few points in each of them.
One advantage of scalping, like intraday trading, is that there are no interest rate payments since the positions are closed quickly. Therefore, Islamic scalpers can use a standard account and are not limited to using an Islamic account.
If a scalper wants to maintain a position for a longer period of time and accumulate more benefits, they will have to use an Islamic account. This is because if they don’t, they will have to cut their position to avoid paying interest. Although this is less likely to happen in scalping than in intraday trading, it is still important to keep in mind.
Swing Trading in Islamic Accounts
Swing trading involves opening positions for a few days to a few weeks. As per the principles of Islamic finance, a swing trader should use an Islamic account to avoid paying interest. Even though swing trading is considered the least risky of the three short-term investment approaches, it is essential for Islamic traders to have a swap-free trading account.
Benefits and Risks of Islamic Investment in Australia
Islamic investment offers several benefits:
- No swap commission – Allows you to open long-term positions without reducing profits due to swap commissions.
- Islamic ethical investing – Islam prohibits engaging in activities deemed haram, including alcohol, gambling, and conventional insurance. Therefore, Islamic accounts are a viable option to avoid investing in these activities.
Islamic investment comes with certain drawbacks, including:
- No swaps – The absence of a swap can be harmful to a halal forex trader since they will not receive positive interest payments that are often paid to short positions. This can also prevent them from benefiting from carry trading strategies.
- Administrative fee – After the elimination of interest, non-swap brokers may charge a fixed administrative fee similar to banks in Islamic finance to maintain profitability.
Nevertheless, like any investment, it also comes with risks.
How to Open an Islamic Account in Australia
Opening an Islamic investment account in Australia involves a straightforward process:
- Research Providers: Look for financial institutions that offer Islamic investment products in Australia.
- Check Compliance: Make sure the provider’s products are Shariah-compliant. We recommend SydneyFX‘s islamic investment Australia account.
- Apply: Fill out the online form and provide necessary documentation.
FAQ
Is forex trading halal?
According to Sharia Law, Forex trading can be considered halal if specific rules and guidelines are followed. Any deal that involves riba (interest) is considered haram. To ensure Forex trading is halal from a riba perspective, brokers offer Islamic investment Australia accounts that do not charge overnight fees but may charge a commission upfront.
Is forex trading haram?
The permissibility of forex trading depends on how you approach it. If you engage in gambling instead of speculation, or if you earn interest (riba), then forex trading is considered haram. However, brokers offer Islamic forex accounts that provide halal products as they do not charge any interest. These accounts are ideal for Muslims who want to participate in the forex market while following Islamic principles.
Final Thoughts: Islamic Investment Australia
Islamic investment is a growing sector in Australia’s financial market. With a robust regulatory framework and increasing demand, the future of Islamic investment in Australia looks promising. As more Australians seek out ethical and sustainable investment options, Islamic investment Australia is going to play a significant role in the nation’s financial landscape.
