Norbert’s gambit: A better way to buy U.S. dollars

Use Norbert’s gambit to get rid of those currency exchange fees when trading your Canadian dollars for American ones.

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From the December/January 2012 issue of the magazine.

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If you trade online and you want to exchange your Canadian dollars for U.S. greenbacks, prepare to get gouged. Most discount brokerages charge a fee of about 1.5%—or a whopping $150 on a $10,000 transaction. But we’re going to let you in on a little-known technique that virtually eliminates currency exchange fees. It’s called “Norbert’s gambit,” after Norbert Schlenker of Libra Investment Management in Salt Spring Island, B.C. As far as we know, he pioneered the idea of using shares listed on both Canadian and U.S. exchanges to exchange your currency for less.

Thanks to the new Horizons U.S. Dollar Currency ETF, Norbert’s gambit is now easier than ever. This ETF is available in two versions. The first, with the ticker symbol DLR, is bought and sold in Canadian dollars, while the second, DLR.U, trades in U.S. dollars. The difference in price between the two versions reflects the current exchange rate: at press time, DLR was trading at $10.18 Canadian, while DLR.U was priced at $9.96 U.S.

Here’s how you can use this ETF to exchange $10,000 Canadian:

  1. Get a quote for DLR and calculate how many shares you can buy for $10,000 Canadian.
  2. Place an order for that number of shares. The trade will settle in Canadian dollars.
  3. Call your discount brokerage’s customer service desk and ask them to take your DLR shares and “journal them over” to the U.S. dollar side of your account, where they should show up as DLR.U.
  4. Place an order to sell all of your DLR.U shares. The trade will settle in U.S. dollars.

You’ll pay two commissions and lose a little on the bid-ask spread, but you’ll still save big overall. Note that this technique only works if you can hold U.S. dollars in your account. Most brokerages don’t allow this with RRSPs.

27 comments on “Norbert’s gambit: A better way to buy U.S. dollars

  1. Question about Trade will settle, is this when it physically settles or right after you make trade?

    can i call the desk and Journal them righrt away?

    When i get my trade confirmation paperwork in the mail, it usually shows settlement 2-4 days after the trade
    thanks

    Reply

  2. @Mario: This is a great question. Stock/ETF trades should settle on the third day after you make the transaction. Some brokerages seem to require you to wait these three days before journaling the ETF from one currency to another, but not all of them do. I would suggest you call the brokerage to ask them before you try the gambit.

    Reply

    • Thanks for the i will try next time i change over cad to US

      Reply

  3. With RBC Direct Investing you can buy and sell one right after another. I did this for the first time last week and I just made sure that my order was completely filled before I sold. I used POT instead of DLR and DLR.U and it worked great.
    http://www.christinanorman.com/2010/10/using-rbc-

    Reply

    • just tried this and it was more than a week of waiting to clear at rbc. not worth it

      Reply

  4. I posed the question of whether I can perform Norbit's Gambit inside my RRSP to my online discount brokerage and this was their e-mailed response:

    "Thank you for contacting TD Waterhouse Discount Brokerage.

    We are sorry , but it seems that the process of Norbert's Gambit only works if you have both a US and a Canadian currency account. TD Waterhouse RRSP account is only available in Canadian currency.
    Therefore, if you buy and sell U$ currency stocks in these accounts, you will have the foreign exchange conversion occurring. Please note that you cannot hold actual U$ cash in a registered account with TD Waterhouse but you can hold U$ money market. We have a process where you can avoid the foreign exchange conversion when you buy and sell USD shares in your registered accounts.

    Reply

  5. (Part 2 of comment):
    Please allow us to explain. If you currently have US currency stock in your account, upon selling it you can take the proceeds and purchase TD U$ Money Market using the same exchange rate that was applied to the sell trade. In the future, if you purchase US stocks, you can sell US Money Market to cover the buy trade using the same exchange rate that was applied to the buy trade. Both of these processes is called "washing" the trades.
    In order to "wash" the trades you MUST contact our TD Waterhouse trading line at 1-800-465-5463 or 416-982-7686. You can call on the day of the trade, we recommend no later where our Investment Representatives will certainly accommodate your request."

    I am a newbie so forgive my ignorance, but am I correct in saying that washing a trade and Norbit's Gambit are not exactly the same thing? Could you comment on that Canadian Couch Potatoe?

    Reply

  6. @MetaRX: You're correct that Norbert's gambit and washing trades are not the same thing. The main difference is that washing trades is only useful if you already hold a security in US dollars and you want to sell it without exchanging the currency back to Canadian dollars. It assumes that you already paid currency conversion fees when you first bought the US-denominated security, but it allows you to avoid subsequent fees.

    Norbert's gambit, on the other hand, allows you to exchange Canadian dollars to US dollars and back again as many times as you want—assuming that your brokerage account allows you to hold both currencies.

    The short answer is that with a TD RRSP, you will have to pay to convert currency the first time. Canadian Capitalist has written about this pretty extensively. Check out his blog for more.

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    • Do you know if you can do this with Questrade?

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    • In a TDW RRSP you make the CAN-US conversion by buying a dual-listed stock in Canada, and selling it the US. No conversion fees. You then wash the proceeds into the TD US MM fund. You can also now set up an "auto-wash" so that you don't have to call during the settlement period.

      Reply

  7. Canadian Couch Potato, any experience of Norbert Gambit with Virtual Brokers and Questrade with RRSP/TFSA and Non-Registered account? They allow USD RRSP USD TFSA

    Reply

  8. @Bob and Felix: I do not have personal experience doing this with Questrade or Virtual Brokers. However, as long as the account allows you to hold both US and Canadian cash, it should not be a problem. I believe that both brokerages allow this (not all of them do in registered accounts). I would recommend calling them before performing the trades to make sure.

    Reply

  9. The source of the supernotes is disputed, with North Korea being vocally accused by US authorities. Recently, on May 23, 2007, the Swiss government has raised some doubt as to the ability of North Korea to produce the "Superdollars".

    Reply

  10. Is there not an issue with the volume on DLR and DLR.U? I want to move 30K

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  11. Thank You jheitin :)

    Reply

  12. Some extra info as of March 2013 attempting to convert C$ to US$ with TD… I confirmed today that this would work. TD Waterhouse said they could journal DLR over (they were surprised I knew this term). It would take one day to do the journal transaction, so there would be an overnight risk holding DLR. Then it would be 3 days to settle the sale of DLR.U before the funds could be withdrawn to my US$ account at my TD Branch. The agent suggested it might be possible to use a Bond product that is less volatile and is quoted on both the Canadian and US side, and hinted at using a bank bond but couldn't specify anything specific for legal reasons. I couldn't find one that was the exact same bond product quoted in US and Canadian. YMMV however.

    Reply

  13. Just did this through RBC Direct. Bought $25k of DLR, made a quick call and under 60 seconds later they had journaled them to DLR.U and sold them. Worked GREAT!!

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  14. This is great! Just did it through Questrade. Took all but a handful of minutes. Limit order for DLR at the ask (10.20), called to journal the shares over, limit order to sell DLR.U at the bid (9.97). Questrade now has no transaction fees on buying ETFs, only on selling. So the only fee was 9.95. After all is said and done, my effective (after fees) exchange rate was 0.977 compared to market rate of 0.981. Given the amount converted and that Questrade would regularly charge 2% fee on top of the spread if you did it normally, I saved about 300 bucks.

    Reply

    • Hi Mike, Glad to know you did it with QT. I am also with them, just one question, when you call them don't they treat it as a phone trade, which they charge $25?
      And is there anyway to do it myself with QT? Thanks

      Reply

  15. we have recently moved to the US from Cda and still have our money in a TD acct. Can we open a TD brokerage acct, being in the US, to perform such a transaction and not be subject to the bank's exchange rates? We need to transfer our money from Cda to here and feel like we are losing thousands!

    Reply

  16. Pingback: How To Exchange USD To CAD Cheaply Using Questrade

  17. Pingback: Norbert’s Gambit: The Complete Guide

  18. Pingback: Canadians Trading U.S. Securities (and limiting currency fees) | Fearless Cal's Investment Journal

  19. How does DLR consolidation affect Norbert’s Gambit? Would you give and example of pre and post consolidation; Before consolidation I’d get more DLR.U units the higher the US$. Now no matter what, the units are fixed. I get it that each unit may be worth more – but its still not intuitive to me.

    Reply

  20. Can the reverse be done using the same technique? (Converting USD to CAD) I am with Questrade if that matters.

    thank you!

    Reply

    • I have heard you can exchange both ways and only pay a commission fee when you sell.
      I have wasted a lot on exchanging fees in the past, and have tried linking my $USD checking account to questrade with no success.

      I am going to try this right away with $2000 CDN, will save me $$ guaranteed.
      Thanks Norbert! :D

      Reply

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