Islamic Swap Free Account - What is Swap in Stock Trading?
In Stock, there is the payment of swaps every day; this is the interest rate of a stock trading instrument that the stock trading instrument earns per day. This interest for a stock trading instrument like the Australian Dollar is 5%, this means that every day a fraction of this five percent is paid to anyone holding this Australian Dollar.
This brings the Issue of paying and getting paid interest which is an Issue in Islamic Religion. Islamic Religion does not allow paying and getting paid interest, For Islamic stock traders there is an account designed in accordance with their Values; Known as Swap Free.
For this account a stock trader will not pay the overnight rollover interest on any stock trading instrument and will also net get paid any interest, this is also known Shariah Compliant where there is no paying of RIBA (interest) - also referred to as Islamic Accounts.
For a stock trader to get a swap free account, a stock trader has to go to a stock trading Islamic stock trading broker and select the option of “Islamic Account”, This option is provided under the Accounts Section of the stock trading broker specifying the instructions of opening one of these accounts.
Once a stock trader opens a this account, then the Stock rollover interest is removed. Once this no paying of interests is set, if a stock trader is using a trading platform such as the MetaTrader 4 then the rollover fee record will be set to zero.
The rollover fee is charged daily at the end of the trading day for those holding a particular stock trading instrument for which a swap is to be applied. As a stock trader if you do not want to pay this rollover you should close your trades before the end of the day, that way you will not pay the rollover fee as you are no longer holding open stock trade. Because the stock trading market does not open on Saturday and Sunday, the rollover for these 2 day will be charged on Wednesdays, meaning on Wednesday one will pay the rollover for Wednesday, Saturday and Sunday, and therefore on Wednesdays this rollover fee is paid 3 Times.
These positions that pay a rollover interest are commonly referred to by traders as Overnight Positions. Day Traders rarely leave their trades opened overnight and close them all before the end of the day. Swing Traders on the other hand may leave their trades opened for a few days and leave these trades overnight so as to capture more movement in the stock price trend.
Once a stock trader finds a swap free stock trading broker and opens and Islamic Account, the stock trader will have the same trading conditions as those of other traders, except for the paying of rollover fees. This means a stock trader will use the MetaTrader 4 Stock Trading Platform like all the other traders, the stock trader can trade all currencies, all indices, all CFDs, all metals and all other Financial Instruments provided by the stock trading Islamic broker.
However, be careful in selecting a swap free broker, some brokers will add a commission or add some pips to the spread you trade with to cover the swap(Swap Fee Broker). This is not supposed to happen as the stock trader will still be paying for the interest even though is disguised as another charge, good stock trading Brokers do not add any commission nor do they add any charge on to the spreads.
Another thing is that some brokers will charge a rollover fee if the position held by a stock trader is held for more than 5 days or more than 7 days, this should not be the case and the stock trading broker should not charge any carry over interest even if the open positions are held for more than five or seven days. For traders wanting to open this swap free Account with a stock trading Islamic stock trading broker it is good to check for any additional terms of trading for the Islamic Account that you are going to be opening to make sure that the stock trading broker you choose is really a
no swap broker.
Islamic Stock Trading Account
Swap free accounts were introduced by brokers after demand for carry over interest free accounts grew among the Islamic stock traders. The traditional trading account entailed paying of rollover interests in what is known as rollover interest. This led to the introduction of Interest Free Accounts that Islamic traders could open and still keep inline with their rules on no paying and getting paid interest.