Talk about the interest-free account in the trading account (no overnight interest account)

Forex traders know that when trading in foreign exchange, if you hold a position overnight, you will be charged a certain amount of overnight interest. Foreign exchange interest-free account, that is, no overnight interest account. This article will introduce this special trading account to you.

Why offer a no-swap account?

As the name suggests, this type of account does not calculate the trader's overnight interest, and is a special account for traders who are unwilling to pay the daily interest fee. So why is this type of account offered?

No-overnight accounts are special accounts specifically for Muslims, so no-overnight accounts are also called Islamic accounts.Islamic law holds that money is a measure of value, not an asset. Therefore, Islam believes that one should not obtain benefits from money, and the essence of benefits is money. Muslims also believe that giving something is not for the sake of getting something in return. Therefore, Islam prohibits one party in a transaction from receiving or paying interest in any form to the other party. To charge interest would be considered an unjust act.

It is not just the foreign exchange industry, but the Islamic finance industry as a whole. For example, Islamic bonds and loans are "debt-for-equity/note-like" investments that do not directly receive interest, but receive dividends in the form of equity. Sharia law defines the goals and operation of Islamic finance.

At present, the best example of Islamic financial business in China is the Bank of Ningxia. The Bank of Ningxia implements a "mark-up contract". The principle is that I will not give you interest, but I can increase the price or trade goods at a discount to obtain deposit profits, or pay dividends in the form of capital into equity, and withdraw the capital and return the shares when the bond expires.

In addition, the United Arab Emirates, Turkey, Saudi Arabia, Qatar, and Iran are major providers of Islamic foreign exchange.

Requirements for applying for a no-swap account

There are currently some foreign exchangebrokerThey offer no-overnight-interest accounts, and these brokers ask their clients to provide proof of their Muslim identity. Traders need to fill out an interest-free account application form, provide their personal details, provide bank statements to prove interest-free, and a religious account page, or a religious certificate, etc. However, since faith is a very personal thing, most brokers will choose to believe what their clients say. Of course, the terms and conditions also state that in the event of a zero-interest clause being abused, the broker will choose to take measures such as restoring the full amount of fees that would have been due.

In addition, traders need to be aware that while some brokers forgo charging clients interest fees, they are still required to pay interest fees to liquidity providers that do not offer Islamic accounts. These fees may be charged to Islamic account holders in the form of larger spreads and higher commissions or fixed service fees.

Islamic Broker Account Standards

Islamic broker accounts must meet the following standards:

1. The commodity or potential asset at the time of buying or selling must be owned by the trader. Shorting assets borrowed from a broker is a violation of Sharia law, so short trading is not allowed on Islamic accounts. Instead, traders can sell the account currency and buy another currency on the exchange.

2. Forward trading is prohibited. Therefore, accounts that are allowed to trade foreign exchange futures are definitely not Islamic broker accounts.

3. Some brokers may allow traders to trade Forex, commodities, or stocks in one account. However, if the goods traded in the account contain prohibited goods, such as tobacco, alcohol, or pork products, then the account must not be an Islamic broker account.

4. The price of the asset must be fixed, and the exchange has public information. Therefore, the spread of Islamic Forex broker account transactions must also be fixed.

For foreign exchange traders, the use of a no-overnight interest account means that only changes in exchange rates ultimately affect trading results, but as we mentioned earlier, the waived interest will still be made up in other ways, and the overnight interest can be positive or negative, which does not necessarily result in losses for traders.