[This post was updated in February 2015 to reflect recent changes at some brokerages.]
Norbert’s gambit remains the least expensive way to convert Canadian and US dollars at a discount brokerage. For investors looking to buy US-listed ETFs, learning this technique can save hundreds of dollars by sidestepping the wide currency spreads charged by brokerages.
With the 2013 launch of excellent unhedged foreign equity ETFs from Vanguard and iShares, there’s less of an incentive to use US-listed ETFs than there used to be. In fact, in a non-registered account or a TFSA it may not even be worth the added cost and inconvenience if the only difference is a few basis points of MER. But in an RRSP, there’s a significant benefit: using US-listed ETFs can dramatically reduce the impact of foreign withholding taxes, which can add an additional cost of 0.30% to 0.70% to US and international equity holdings.
The problem with learning to pulling off Norbert’s gambit, however, is that there’s no simple set of instructions that works at every brokerage. RBC Direct Investing and BMO InvestorLine both allow you to hold US dollars in registered accounts, but only RBC allows you to do Norbert’s gambit online: at BMO you need to pick up the phone. Scotia iTRADE doesn’t even allow Norbert’s gambit in an RRSP: instead, they offer a unique service that eliminates the retail spread on currency exchange for a flat fee.
As part of our DIY Investor Service, we helped clients do Norbert’s gambit at all of the big-bank brokerages. And for the last few months, Justin Bender and I have pulled that experience together and created a series of five white papers—one for each brokerage—with step-by-step instructions you can follow on your own. Each of the papers includes screenshots and detailed descriptions of each part of the process, all specific to each brokerage’s unique quirks:
Norbert’s Gambit: A better way to buy US dollars in an RBC Direct Investing RRSP
Norbert’s Gambit: A better way to buy US dollars in a BMO InvestorLine RRSP
Norbert’s Gambit: A better way to buy US dollars in a TD Direct Investing RRSP [Update: As of late 2014, TD Direct Investing allows investors to hold USD in registered accounts, which makes “automatic wash trades” no longer necessary. A TD representative discusses the new process here.]
Norbert’s Gambit: A better way to buy US dollars in a CIBC Investor’s Edge RRSP [Update: CIBC apparently now converts currency very close to the spot rate in RRSP accounts. However, they have not been forthcoming with the details: we recommend calling the brokerage before making a USD trade in your account.]
Norbert’s Gambit and US-Friendly RRSPs: A better way to buy US dollars at Scotia iTRADE
We’ve worked hard to make sure these papers are accurate and up to date, but we welcome your feedback. If you have had different experiences at any of the bank brokerages, please let us know and we’ll keep these resources up to date.
Let me know if you would like info on how to do this using Quest trade. I did it for the first time a few months ago and it took about 2-3 days and I had to phone in, but worked out well.
Dan, anyone of the above similar to Questrade?
Thanks
Any plans to do a similar white paper at Questrade? I switched there from TD Waterhouse so that I could hold US dollars without washing, get free ETF purchases and lower fees on all account transactions. I have done Norbert Gambits there using both DLR and inter-listed stocks put the sell order requires a risk specialist which is a bit of a pain, but not risky at all if using DLR. It was more frustrating to wait several minutes while the sale of royal bank went through however.
Neither Justin nor I have used Questrade, either personally or with our clients, so we have no immediate plans to write about it.
Somebody knows if this is feasible with Virtual Broker?
Thanks for the authoritative guides. I noticed a minor error in the InvestorLine document: “If you need to purchase US dollars in your RRSP at TD Direct investing …”. I assume you mean “at BMO InvestorLine”. Also, I’m not sure why this would apply to just an RRSP instead of any type of account.
I hadn’t thought about the effect of markets in the US and Canada being closed on different days. Thanks for that.
Thanks for the guide. I realize the benefit of having an official publication from PWL Capital. But I think a wiki format is preferable, due to the fluidic nature of brokerage setup, and configurations. That way the community can chip-in and update as appropriate.
PS: Please add Questrade. Heck, I’ll write one (following your format) the next time I do the gambit on Questrade.
Virtual Broker has a explicit policy of forbidding the use of Norbert’s Gambit.
@Michael: Thanks for pointing out the error, which is now fixed.
Actually the process can vary in RRSPs and other types of accounts. At RBC and BMO the process is the same (which we explain in the papers) but at the other brokerages some of the steps are different. You may need to wait for the trades to settle before journaling them, for example.
Yes, that idea about the settlement dates being messed up during holidays was something we found out the hard way!
Slightly tangental, but I find it curious that none of your paid clients have ever used Questrade, yet at least in the online/blog community (where, presumably, many clients learn about your service), they seem to be among the most popular (admittedly an anecdotal observation – but certainly they’re not totally unused). Interesting. Could there be some cheapness-correlation here? Or some relationship between the folks coming to you looking for help and some level of desire for a perhaps more well known/bigger/brand name/perceived to be more reliable broker?
@Willy: We have had a few clients with Questrade accounts, but we’ve never done Norbert’s gambit with them.
I have no hard evidence for this, but my guess is that the deep-discount brokers like Questrade and VB are less popular with investors who have larger portfolios. Our typical DIY clients are in the the $200K to $400K range and are often making a small number of large contributions each year. In that situation, the appeal of $4.95 trades or commission-free ETFs is minimal compared to the value of the services offered by the larger brokerages, such as rate of return calculation, GIC inventories, customer service, integration with banking services and the like.
When the Cdn. $ drop below par to the US$, I switched from the TD U.S. Index Currency Neutral-e fund to the TD U.S. Index-e fund.
YTD returns are:
TD U.S. Index-e +36.75%
TD U.S. Index Currency Neutral-e +28.60%
The spread is +8.15%
Cdn. $ is now $0.94 US -6%
I paid in Cdn. $ for both.
I don’t think that I’m getting hit with the currency exchange.
I performed a Norbert’s Gambit a few months ago, and wrote up a comparison of the rate I got from the bank, xe.com, and the gambit. Needless to say, the gambit comes out pretty favourably! On a $5,000 USD transfer, I got $138.25 CAD extra via the gambit (from which two transaction fees must be subtracted… $5 – $10 depending on your broker).
http://liggat.org/2013/09/06/efficient-currency-conversion/
Or one can use Custom House and convert currency online at a very low fee and have it wired to any account you wish. I use it all the time to move CAD to my USD accounts in the US.
http://www.customhouse.com/
@Canuck2004: It sounds like Custom House allows you to move money between countries, which is quite different from simply exchanging currency in the same account. You could not use a service like that to buy USD in your RRSP.
The CIBC one looks good. Alternatively, you could buy a USD Money Market fund and wash / net into and out of that fund if you’re regularly buying / selling USD stocks. That way there isn’t any “stray money” left over that gets converted back into CAD when you do your buy.
I just use knightsbridgefx. You can’t use it for registered accounts though.
Thanks for this, Dan (and Justin). These guides are going to be a great help to a lot of investors.
I believe there is a small error in the BMO guide, however. Unless the BMO Investorline system has changed very recently, it is actually quite easy to do Norbert’s Gambit entirely online (without phoning anyone) at BMO. I’ve done it several times in my RRSP account over the last year.
You just use the BMO website to purchase your cross-listed stock on the Canadian market, and then (still using the website) immediately sell those stocks on the US market. You’ll have your US dollars right away and you can use them to make purchases on the US exchanges immediately.
Unfortunately, your holdings summary will now have a confusing looking negative entry (i.e. it will show that you have 2500 shares of the cross-listed stock on the CAD exchange, and also that you have -2500 shares of that same stock on the USD exchange.) This is exactly what you describe in the section of the BMO guide called “Getting Settled”. As you say, these entries are quite harmless and will cancel each other out within a few days.
I think I read somewhere that using DLR and DLR.U doesn’t work properly on the BMO system, so if you try to use those stocks, you may indeed need to phone BMO. I don’t know this for sure, though, since I’ve never tried using DLR. I always just use one of the other big cross-listed stocks with a low spread, like Royal Bank (RY) or Potash Corp (POT).
@Cory: Thanks for the tip. We don’t do Norbert’s gambit with interlisted stocks: we prefer to use DLR/DLR.U to avoid any risk of the stock price moving during the process. But it’s interesting to know this can all be done online. We have definitely found that brokerages have a hard time with DLR/DLR.U for some reason.
What is the difference in using DLR/DLR.U over buying interlisted stock on TSX and seeling right away this stock on NYSE? If you select liquid stock like TD and doing both transactions in quite afternoon time, it should work fine.
In TDW – your TD:NYSE stock sell will go directly to US MM (without calling).
In CIBC – you need to call rep for wash/netting and ask move proceed from your sale to US MM *”freeze FX rate).
I use Custom House to buy USD in Canada and move the funds to my other Canadian Bank USD Accounts as well …I have USD accounts in most CAN Banks, and 3 different banks in the US.
For example, I can buy USD from CAD funds in my TD account from Custom House and have it sent right back to a USD account at the same bank, or any other bank of my choosing, either in Canada or USA or anywhere in the world. Fees are very very low, at lot lower than any bank in Canada.
As far as I know, one cannot hold USD in an RRSP.
For example, all my USD denominated dividends are, and always have been, automatically converted to CAD in my RRSP. Same as holding physical gold, prohibited.
One can hold USD ETFs, stocks, etc. but are forced to buy it from CAD funds inside the RRSP and pay the Bank’s or the Canadian Institution’s current rate for it. There is no USD denominated RRSP.
@gibor: there is a danger that the price of the interlisted stock will change during the time that you own it. This is a (small) added risk to the transaction. If you use DLR, then in theory the only reason the price could change is if the currency exchange rate itself changes between when you buy and sell. (And that risk is unavoidable no matter which stock you use.)
@Canuck2004: Several brokerages in Canada allow you to hold USD in registered accounts. And all of them have various ways of allowing you to transact in USD in an RRSP without necessarily enduring that forced conversion. That is the whole point of the process described in the papers.
Cory, that’s right, but on other hand you doing those 2 transactions in less than a minute… yes, there is a chance of stock moving, but it also can be in your favour….
I usually do it on quiet day, afternoon time, watching for some time that interlisted stock on both sides not moving significantly…
As with interlisted stock, you need less to call trader, as you can sell online TD:NYSE for example….
It’s also convenient if you want to leave some amount of shares for this interlisted stock…. for example i wanted 20 more shares of TD, so I bought on TSX 100 shares and sold on NYSE – 80
Also imho interlisted stock are more straight forward, was suspecting that Horizons have some hidden charges on those ETFs or why they would introduce it?
@gibor – There’s absolutely no reason to suspect Horizon has secreted hidden charges somewhere on those ETFs, but even if they did – who cares? You’re only holding them for several minutes at the most – as long as it takes to journal the ETF holding and sell again.
Hi everyone,
Great article. I did the Norbert’s Gambit today (converting USD back to CAD) through RBC Direct Investing using TD’s stocks and I think it worked. Very easy. I’ll just briefly summarize the 2 steps:
1) Bought TD (USD: NYSE) on the USD side of my account on the USD market, and
2) Sold TD (CAD: TSE) on the CAD side of my account on the CAD market.
I think this is correct? Please feel free to let me know otherwise.
Also, I was a little confused reading the RBC Direct Investing White Paper (page 6), where you suggest to sell DLR.U (CAD: TSE) on the CAD market from the USD side of the account. But I figured that was because it’s listed on the TSE, but trades in USD.
I will also mention that I did not use a limit order, which was my error, as I should have known better. But I will keep that in mind for future transactions.
Cheers,
Hanson
@Hanson: Yes, as you suspected, DLR.U trades in US dollars, but it is listed on the TSX, so on the order screen you need to select the Canadian market, not the US market. This trips up a lot of investors the first time, especially if they are used to doing Norbert’s gambit with interlisted stocks.
@Slacker, there is a wiki entry at http://www.finiki.org/wiki/Norbert%27s_Gambit. If you’d like to contribute, there are now a couple of ways, either through the Article Feedback Tool at the bottom of the article or request an account, details are in http://www.finiki.org/wiki/Help:Guide_For_Contributors#Becoming_a_contributor
News to me that one can now hold USD in an RRSP…
But I don’t see the advantage of a dual currency account. Sounds like another layer of unneeded complexity to me.
If one buys US dividend stocks in an RRSP when the currency rate and stock price is advantageous, then if when one receives the USD dividend over time or sell the stock at a later date, when the CAD is lower…. and it is converted to CAD…I get a bonus.
Percentage wise, the bank fees are inconsequential…as one should not be doing frequent trading in an RRSP….it is for long term investment, not for trading…use a margin account for trading (tax advantages). After all, the CAD is the currency I use here.
The CAD over the long term is more likely to trade lower the USD…. it has historically. So a dividend income stream converted regularly from USD to CAD is advantageous for diversification of the income stream in an RRSP.
I’m a lazy dividend investor in my RRSP. I let time do the work for me.Rule of 72.
@Canuck2004: the bank fees associated with currency conversion are anything BUT inconsequential, even if you only buy and sell infrequently:
https://canadiancouchpotato.com/2010/10/19/reducing-the-cost-of-currency-exchange/
Don’t confuse the exchange rate (how much USD you get for a CAD) with the exchange FEE, which banks charge in addition to the fair exchange rate. This fee is normally hidden in the quoted exchange rate, but it amounts to another 1-2% off the top every time you switch currencies. So if you hold US stocks in a CAD account, you lose 1-2% when you buy a US listed stock, and again when you sell it, and 1-2% gets taken off of every dividend payment, too.
There’s a reason people go through the hassle of Norbert’s Gambit, and it’s not because they’re just frequent traders trying to hustle the system. :) It’s because the foreign exchange rates charged by Canadian banks amount to highway robbery. They are a *significant* drag on investment returns!
Thank you – this is extremely helpful. I wish I was better informed last year when I put more than $500,000 in USD non-registered accounts and in USD ETFs in RRSPs but then I recall getting a better exchange rate from TD for these transactions because of their size. Still, I might someday want to move these funds back into CAD and this approach works both ways so it’s great to know.
Follow up to my previous comment. I just got off the phone with TD Direct and indeed the exchange rates do improve as the transaction amount increases. With the actual current exchange being $1.0650 they offered exchange pricing of $1.0815 down to a very reasonable 1.0683. These are the premiums at different amounts as I calculated them:
Less than $10k – 1.55%
$10-25k – 1.46%
$25-60k – 0.89%
$60-75k – 0.69%
$75-100k – 0.63%
More than $100k – 0.31%
Transactions larger than $60,000 should be called in.
Wow! Terrific guides. Thanks for the hard work!
Thanks this is really helpful for us novice investors! I don’t have US listed ETFs in my portfolio for this exact reason, but now if I ever do want to invest in US listed ETFs I am confident that I would be able to follow your guide.
Hello,
I’ve performed the norbert’s gambit a couple of times via Questrade.
First you need to ensure your accounts can hold USD and CAD as Settlement currency. If you don’t do this, the funds will be auto converted back to CAD (after a ‘journal’) at the end of the day.
You’ll need to change your RRSP/TFSA account settlement currency to ” Trade currency” , which will help you hold both CAD and USD cash and the funds will not be auto converted going forward.
In order to change your RRSP Settlement Option, login to myQuestrade – click on the My Accounts Tab – click on Account management -click on Currency Settlement on the side bar and select (Trade Currency – For Both CAD and USD)
After this, buy shares in DLR etf. Then either call or webchat (can’t do this via email) the questrade support and asked them to “journal over these shares to DLR.U”.
It takes a few days, but eventually you’ll see the ‘DRL.U’ which you can subsequently sell to get your USD.
Hope that helps!
Thanks for editing my earlier comments. Darn chevrons :)
@Brian: Sorry, HTML doesn’t work in the comments!
Thanks for the info. If you are making a large transaction and don’t want to be bothered with Norbert’s gambit, it’s definitely worth a phone call. If you can get the spread down to 0.31%, that’s pretty good. But 1.46% is pretty brutal. With DLR we can usually get it in the vicinity of 0.20%, albeit with quite a bit more work.
For more background, see this post:
https://canadiancouchpotato.com/2012/12/17/how-much-are-you-paying-for-us-dollars/
I wasn’t trying to use HTML but I used chevrons instead of “more than” and “less than” and I think it deleted everything between the two.
Keep up the great work! I’ve learned a lot from your blog over the past couple of years.
In general, for Norbert’s Gambit, we don’t have to wait for the buy/sell orders to settle, right? For example, if I bought DLR at 11am today, I can technically sell DLR.U at 11:01am and buy VEA at 11:02am, right?
Also, instead of going through the DLR/DLR.U process, can I not buy an equity that is interlisted in both the TSX and the American exchange (NYSE, NASDAQ, etc.)? For example, I buy Suncor on the TSX, then sell it on the NYSE (of course, after I’ve turned on autowash)?
Thanks so much for this. Now I have to grow a pair and “just do it”.
@DL: Whether you have to wait for the trades to settle depends on the brokerage. All the details are in the white papers. And yes, you can also do this with an interlisted stock (see some of the comments above). However, if you need to wait for the trades to settle you’re taking considerable risk by using a stock, since the price could move dramatically in three days. If you’re with a brokerage that allows you to but and sell immediately that risk is much smaller (though not zero).
@CCP: Do you know if TDW requires the wait time to settle?
Can you do something similar with C$ and US$ money market mutual funds? Just do a switch between the two funds which should pick up the end of day foreign exchange rate.
@DL – please see the Canadian Capitalist blog on this topic:
http://www.canadiancapitalist.com/instant-norbert-gambit-for-all-td-waterhouse-investment-accounts/
Wow. Great stuff Dan. Lots of reading for me to do.
Keep up the great work!
Mark
DL, definetely you can buy SU on TSX and sell right away on NYSE, and right away you can buy US stock with proceeds ( I think in this case they will wash right away even without using US MM). Also if there will be some smal leftover (don’t remember amount) they won’t buy US MM. But you don’t care about settleing.
I actually prefer to gambit with bank stocks, from what I understand better to deal with interlisted stocks with low beta and high volume.
Couldn’t spread for DLR be too big considering not high volume just 14K?
In anyway via DLR/DLR.U or interlisted stocks we can reduce FX rate, even though we have to pay trading fees… so depends on the brokerage if you want to “wash” less than , lets say $2000, it just doesn’t worth it….
In brokerages whao doesn’t have US$ RRSP, like TDW ot CIBC, the bigger problem with US dividends, we pay the worst FX rate (small amounts) and double FX rate for DRIP.
I might be the only one using DISNAT. Any experience, advice…??
I find the lack of GIC inventory at Questrade an advantage because I prefer to shop around for the highest rate GIC so in managing my parents finances I have on a few occasions transferred large sums of cash to People’s Trust to invest in a RRSP GIC (as the YTM has fallen on bond ETFs) and being at Questrade saved us $75 on the partial transfer out fee. Later People’s Trust charges nothing to move the money back when yields normalize. Further as they are in the withdrawal stage they save another $75 per year, per account on partial de-registrations. So in the end the much lower fees (than TD Waterhouse in this case) really add up. Lastly the free ETF buys allows easy deployment of cash that has not been DRIPed as you can buy single shares with no hesitation on the relative trading costs.