[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.
OK, just checked some trades from last several months:
Direct buy (XLNX) got rate 1.1041, BoC noon rate same day 1.1042
ABBV dividend from Aug 15, got it with rate 1.09009, CIBC DRIP share using rate 1.09019, BoC noon rate Aug 15, 1.091.
Thus, why do I need “gambits” with such rates?!
@gibor: Thanks for the specific examples. Clearly if those are the rates you are getting there is no need to use the gambit in an RRSP. In a non-registered account the situation would be different: the CIBC rep I spoke to confirmed that much, though he was not specific.
@Oldie: The brokerages really are less than forthcoming about this. The CIBC rep I spoke to was an executive, not a front line rep. He is well aware of the issue, but he was not able to be specific about the usual spread. I think they are just concerned about being held to a specific number that might change slightly for different clients.
@CCP: OK, I hear you, and your answer rings true.
@gibor: Your answer is specific, close enough to what I was looking for, and very impressive. Basically conversions at spot rate with no hidden fee for the last few years, as long as you stayed within the RRSP! The only nagging fear from the viewpoint of lack of transparency, and that there is nothing offered in writing or in advance, I guess, is the fear that one could plan for a very large conversion and suddenly have that sweet deal pulled out abruptly from under your feet without your knowing in advance, and you lose thousands when you could have otherwise have arranged a Norbert’s gambit. But there is nothing to stop you, prior to a large conversion that has high stakes, from phoning in advance of such an event and confirming that nothing has changed and that all RRSP customers are still getting the same rate. And no commitments for the same deal in future is no worse than anywhere else (i.e. discount brokerages). So this is truly a sweet deal for the man in the street in this respect, highly in favour of the CIBC discount brokerage in the RRSP. Any downsides that you have run into to speak of?
@CCP “I think they are just concerned about being held to a specific number that might change slightly for different clients.” –
Reps and their managers cannot give you specific number as they don’t know :) they have department in back office who dealing with FX rates, so when you talk to rep you can ask him to call back-office and ask…. (that what I do when I use FX netting).
Actually it’s not easy to give exact number as this number is changing during the day… BoC gives you opening rate, close rate, high, low and noon. If you buy for example at 2pm, what would you expect? They cannot tell you that you get BoC noon rate minus 0.01 or so, as in those 2 hours real FX rate can change a lot. This is why reps telling that you get FX rate very close to BoC rate.
@Oldie, all your concersation with rep are recorded, and if they tell you ” reps telling that you get FX rate very close to BoC ” and suddenly you got very bad rate , you can really make a case…
So fat , again, I tracked a lot of my transactions and I didn’t have problen with CIBC, however, TDW was charging me very high FX rate and always very different spread from time to time.
WANT TO REPEAT THAT THOSE RATES ONLY FOR REGISTERED ACCOUNTS!
” Any downsides that you have run into to speak of?” –
– if you want USD RRSP, don’t expect it soon as they kinda in ball park stage. I personally prefer FX conversions at BoC rate and if I need I can just buy US MM.
– you need to call for FX netting, you cannot setup “wash” like in TDW. On the other hand you can buy 3rd party GIC online that you cannot do in TDW
– and finally the biggest drawback imho :) if you have $$$ in ATL5000/TDB8150 or MM, you cannot place buy order on stock until you place sell order on ATL5000/TDB8150 or MM.
@gibor: Just to make sure I understand — in the CIBC Discount Brokerage RRSP you cannot buy or hold US denominated ETFs (yet) ? Oh, if that is true, then the huge advantage of easily converting to and from USD in an RRSP would be not result in much advantage, after all. Pity.
Oldie, sure you can hold US stocks and ETF, but you hold them in Canadian $ account…. so when you buy US stock, amount will be converted to CAD using FX rate…
In future CIBC as well as TDW want to have ability to setup 2 separate RRS{ or LIRA accounts, one in US$ and one in CAD$
@gibor: OK, I get you. Prior to knowledge of this favourable rate, the holding of US stocks in the CAD account was a huge red flag, with transactions, including dividends triggering automatic conversions to CAD, usually at bad rates, leading to significant drag over the years. I have to get my head around this one — holding in CAD account, but with full protection against FX “leakage” of profit. Thanks gibor!
If I’m rebalancing and I need to sell $4,500 CAD worth of US listed VTI to buy other Canadian listed ETF’s would I just reverse the process but first converting the $4.500 CAD to USD so I can work with VTI in USD?
$4,500 CAD x.92 (what rate would I use here, posted rate?) = $4,140 USD
Sell $4,140 VTI at Bid Price
Buy $4,140 DLR.U at Ask Price
Sell DLR at Bid Price
@SRR: I’m confused. You already own VTI and you want to sell some and convert the proceeds to CAD, right? What type of account (RRSP or non-registered) and what brokerage?
Yes, I own VTI in an RRSP brokered through TDW. I did the gambit on the way into VTI and wondering about bringing some of it back to CAD cash…
I’m starting with CAD as that’s what I see on my TDW screen and I use CAD to balance my account… sorry for the confusion.
@SRR: OK, now I understand the confusion. If you own VTI then you hold US dollars. The brokerage will display the value of your holding in Canadian dollars, but the ETF itself is still denominated in USD.
You need to do Norbert’s gambit the opposite way we describe it in the paper. Start by signing up for automatic wash trading at TD (instructions are in the white paper). Then sell VTI and use the USD proceeds to buy DLR.U. Then journal DLR.U to DLR and sell it: the sale of DLR will settle in Canadian dollars and you can use these to buy your new ETFs.
I wouldn’t bother with DLR….
1. setup for automatic wash
2. sell VTI
3. Buy any interlisted stock with high volume like POT, TD, RY on NYSE
4. Right away sell same stock on TSX
P.S. do it in quite afternoon hour
@gibor and SRR: You can certainly use an interlisted stock instead of DLR. But as always, be aware that the stock can move in price during the interval between your two trades. I have seen it happen quickly. As long as you are aware of that risk, it can be a way to reduce the cost of currency conversion even further.
Hello,
I have a question about buying and selling interlisted stocks on different exchanges and on different days; as well as capital gains/losses implications.
If I were to buy 120 shares of RY on the TSE (Canadian exchange) with Canadian dollars from the Canadian side of my account on a day when the currency exchange rate is 1.11 (USD->CAD);
and then a week later if I sold those same 120 shares of RY on the NYSE (American Exchange) for American dollars to yield on the American side of my account when the currency exchange rate is 1.09 (USD->CAD);
What are the tax implications of this with regards to capital gains/losses?
How would I factor in that change in currency value?
Example:
The day I bought it 9851.15 CAD (Currency Exchange at the rate of 1.11 is equivalent to 8874.91 USD)
The day I sold it 9037.75 USD (Currency exchange rate of 1.09 is equivalent to 9851.15 CAD).
The amount the stock is worth remains the same in terms of Canadian dollars, and I am a Canadian taxpayer. However the value in terms of US dollars went up due to the change in currency values.
Thank you in advance for any help you can give me.
@FunnyBunny: A capital gain is calculated based on the value of the asset in Canadian dollars. So in your example, the gain is zero. The stock was purchased for $9,851.15 CAD and sold for the equivalent of $9,851.15 CAD. The USD exchange rate in this case is irrelevant.
It would be different in a case like this: say you bought an asset priced at $10,000 USD when the currencies were at par, so the book value is also $10,000 CAD. Let’s assume a year later the asset is still priced at $10,000 USD, but now the exchange rate has changed at $10,000 USD is equivalent to $11,000 CAD. If you were to sell the asset now, you’d have a $1,000 capital gain.
The key point to understand is that buying Royal Bank on the USD side of your account does not actually expose you to the US dollar. Your only exposure is to the stock itself. This is a confusing and widely misunderstood idea. I wrote about it here:
https://canadiancouchpotato.com/2014/01/13/how-a-falling-loonie-affects-us-equity-etfs/
Hope this helps.
A MESSAGE SENT TODAY TO RBC DI FROM A ROYAL CIRCLE MEMBER:
Hi,
Wish to convert CDN proceeds from sale of MF in account XXXXXXXX, and spoke to XXXXXXXX today about premiums. He gave me the plateaus, to which I added the bps premiums given to me yesterday by XXXXXXXX:
< 40K 40bps
< 55K 37bps
< 70K 30bps
< 550K 25bps
Asked for specific costs on three sizes of conversion:
$25K CDN 1.1106 above wholesale rate, yielding $22,510.35 USD
$50K CDN 1.1073 above wholesale rate, yielding $45,154.88 USD
$100K CDN 1.1021 above wholesale rate, yielding $90,735.87 USD
With the wholesale ask rate at that instant on OANDA being 1.0968 (0.9118):
$25K CDN buys $22,793.58 USD, a 125.8 bp premium
$50K CDN buys $45,587.16 USD, a 95.7 bp premium
$100K CDN buys $91,174.33 USD, a 48.3 bp premium
This is substantially more premium than suggested initially, but based on a real quote from your representative.
Would you please explain how these differences can be, as we are debating the virtue of performing a Norbert's gambit rather than Forex to generate the desired USD?
Thank you,
XXXXXXXX
—————————————
With this specific example would any or all of these three possible conversions be better through Norbert's Gambit than the Forex conversions.
At the same time I got the quote, my streaming quotes for DLR and DLR.U were:
ETF Bid Ask
DLR 10.92 10.93
DLR.U 9.95 9.96
If it's not too much trouble your advice would be welcome, thanks
@Davie215: Great question. There’s a simple way to calculate what you should expect to receive when doing Norbert’s gambit. Let’s look at the situation where you’d sell $50K CDN and receive $45,154.88 USD and compare:
Based on these numbers, you would save about $343 by using Norbert’s gambit.
Thanks for the prompt and detailed reply, which confirms the mechanics of the benefit. The mystery of the tiny 40 bps markup versus the exact rate quoted by RBC DI was explained by their reply to my message:
——————————–
“I appreciate that you are attempting to receive the best foreign exchange rate possible. RBC Direct Investing does not participate in the Foreign Exchange Markets directly and must conduct Foreign Exchanges through a third party intermediary. When these Foreign Exchanges are conducted, RBC Direct Investing portion’s of the spread is 40 basis points (i.e: 0.4%). The wholesale rate that this spread is added to is also called the “Institutional Spot Rate”. RBC Direct Investing is not in a position to comment as to how our third party intermediary performs Foreign Exchanges or how the rate at which RBC Direct Investing purchases the required currency is calculated.”
————————————————
So it appears that the OANDA spot rate being 1.0968 is not the base from which the RBC premium is added, which I knew from the “real” 95.7 bps markup.
Like the endless stream of airline fees and surcharges being piled onto the spot rate, RBC DI is only the last step in the markup — they add to the already-bloated institutional spot rate to disclose only their gravy — not openly disclosing that you just use the OONDA spot rate and add their smallish 30 bps claimed markup to determine your USD amount.
So the Gambit savings are $343, a nice reward for the Gambit.
Others have pointed out that an interlisted equity like RY or TD, with a higher share price, might reduce the commission drag even more, so has anyone done this, and can provide bid-ask spreads with the OONDA spot rate at that instant?
I recognize that there’s market price risk during the buy/sell process by doing it this way.
@Dave215: Thanks for posting that reply from RBC. I find the tone amusing. I guess RBC is just a delicate little flower blowing in the winds of much greater forces that determine exchange spreads. If only they had the market clout to get a better deal for their customers.
Besides reducing fees, an additional solution to high currency transaction fees is to do them very rarely. This may seem obvious but it’s not something I’ve seen in this article or the comments so far so I thought it is worth pointing out. Much like how index investors buy and hold to avoid transaction costs, you can do the same with your currency exposure. If you are doing more than one currency transaction every 1-2 years or so, you’re probably doing too many. (I’ve got by with one every 3 years or so.)
Also, don’t forget that if you hold US listed ETFs you must report them as foreign property T1135 once the amount goes over $100k at ANY TIME during the year. This can be a bit of a pain, so holding Canadian listed ETFs will be a simpler option.
@Brian G:
I’m not sure I follow. By “high currency transaction fees”, I assume you mean standard, non-gambit transactions at a broker that charges up to 3% of the total amount. Since there’s no flat fee (it’s just a percentage) how does the frequency of transactions affect your total costs? After all, doing 100 transactions for $1,000 each incurs the same fees ($3000) as 1 transaction for $100,000.
This is the first I’ve heard of T1135 tax forms. I assume it’s $100,000 in total and not for a single ETF? I’m definitely going to research this…
Hi, just wondering how this compares to simply using an online currency trading platform such as OANDA directly. In that case you transact at the instantaneous spot rate (plus a very low spread, ~2bps I think) and the cost is whatever your bank(s) charge you for outgoing/incoming wire transfers (~$40 round trip). Better liquidity in exchange for slightly higher fees & perhaps a bit longer for funds to clear? Plus no need to ever phone anyone (or their manager…)
Oops, forgot to add that OANDA will also charge a flat fee on the exchange (~$20 I think?) as well, so I guess the various fees start to add up.
@Tom: I’ve never used a service like this, though I have heard from other readers who have used them. My guess is they would have pretty competitive rates if the amounts were large enough. However, Norbert’s gambit is probably must useful in an RRSP, where there’s a greater incentive to use US-listed ETFs. And obviously using a third-party service is impossible if the money is in an RRSP.
@CCP thanks for the quick reply. Perhaps it depends on your ultimate purpose — I’m thinking in the context of USD income/CAD expenses (or vice versa) in which case running it through a registered account might be too cumbersome. Further internet research seems to indicate that Interactive Brokers also offers even thinner spreads (0.2 bps or less, with $2(!) minimum).
If I’ve got my decimals correct, bid-ask on DLR equals about 10bps? Times 2 for the round-trip equals 20bps?
@Tom: Yes, we usually figure the bid-ask spread on a round trip with DLR amounts to about 20 bps. You can get it lower than that with an interlisted stock, but you’re assuming some market risk.
Just a note that TD is now saying that they will introduce a US $ account starting in November for registered plans, and that Norbert’s Gambit will now require calling a representative on the phone, and not be possible on-line. Not sure yet if this means additional fee of a phone call trade. (count me as not impressed with this latest “improvement”)
@françois: Interesting, thanks for sharing that. TD has been promising this for years, but I had never heard them give a specific date yet. As for the cost of making a trade on the phone, the usual practice is to charge only the online commission if the trade is something you cannot do online.
@François, thanks for the info. I had been with TD for about 20 years but this confirms I have made the right choice by dumping TD at the end of 2013. I had a very substantial amount of business with them and I’ve reduced it to a tiny fraction of what it was. Oddly, nobody at TD has bothered to call me and ask what is wrong after loosing such a big account.
What I found wrong with TD:
– They changed. Canada Trust (of which I was originally a customer) was always about value and giving a good deal. I saw and felt TD abandon this customer first approach. There is now no concern about doing what’s best for the customer… every time I go in they seem to try to up sell me some new crap that pays them higher commission. It feels like walking into a auto dealership now. I could always see through their sales quotas it and it got tiring.
– Too many nickel and dime fees and seemingly more every year (the $5 to $50 replacement safety deposit key rate hike was particularly amazing; that was a 900% increase!!!http://www.thestar.com/business/personal_finance/spending_saving/2012/02/17/tds_shocking_fee_hike_for_safety_deposit_boxes.html )
– Consistently really crappy savings and GIC rates compared to the competition.
– Consistently really crappy loan rates compared to the competition.
– Consistently crappy mutual funds that are behind the times in terms of fees. (Except e-series which they try to stop you from buying.)
– The topper was, I used their “Private Investment Council” for some of my investments from 2009 to 2013. This was supposed to be a premium service, bla bla bla. Let me tell you that the service was poor (no performance reporting compared to index, rare meetings, no tax planning to maximize after tax returns, etc.) and the overall risk adjusted returns were just not there. When I pointed out that a simple XBB + XIU (or even their own e-series funds) portfolio with the same equity/fixed income asset mix outperformed with less volatility, my TD advisor first suggested that I increase my equity % to match the rate of return. Huh? Dangerously bad advice. Had I been a naïve investor I might have fallen for it. How these guys are not in jail is beyond me. Clearly there is not even a slight bit of fiduciary duty there.
Let me tell everyone here that this Dan is giving everyone much better DIY advice here than my high priced advisor gave me.
I am sure this new plan by TD is just another way for them to block you from saving money. Unlike, @CCP, my experience tells me not to trust TD and I suspect they will charge a lot of customers for making a phone trade… time will tell. Personally I would just leave TD. At minimum, I strongly recommend people shop around and not just put up with what they are forced in to. I am glad I did.
I ask, what does TD do uniquely well, even when compared to the other big banks?
RBC – has decent GIC rates for a big bank and they own PH&N which doesn’t totally suck and they’ve attempted to lower fees with Series D funds
Scotia – iTrade is okay and Tangerine is leader in online banking
BMO – has some very good ETF offerings
What does TD do well?
@Brian G. I am not at the point with TD, but yes there is many irritants. You ask what they do well, well the e-Series is something they do extremely well. And as i am trying to move non-savvy friends to take control of their savings, I have found them to be extremely simple to convey (once you have gone through the ordeal of opening an account).
Sadly one thing they do also well, is the 24 hour call centre. But to me this reinforces the view of the lack of need of having web-based solution, (like moving money out of TFSA, opening an account or changing your address) . I can’t wait the next time i go travel, i will be calling them collect from everywhere, since this is what they are telling me to do.
don’t get me on the TD advisor. i had to go to my branch yesterday, and the rep was trying to set me up with the advisor, saying there was no cost, and that there was no commission paid. Sadly, the rep himself had bought the whole argument for is own account- he couldn’t even tell me why he wasn’t using e-series for himself.
But hey now they will have US RRSP accounts.
@Dan. This is the reply i got from TD regarding the trading costs
“To participate in Norbert’s Gambit, you can purchase a stock online on WebBroker, and then process an offsetting trade on the other market with a telephone brokerage at the telephone brokerage commission. Again, this can be a risky trade and has a lot to do with the liquidity of the security you are trading and the volatility of the FX market.
Now, completing Norbert’s Gambit does have the above cost, so you really should judge the FX savings to see if it’s worth it.”
So it looks like it will now be more costly to do at TD, thanks to this ‘improvement’ ,
@francois: yes, this is a real irritant, especially, since the intent seems to be to discourage Norbert’s Gambit. Their characterisation of the NG as a possible (implication = “likely”) “risky trade” is also off-putting, when it is not risky with an appropriate stock, and when done with reasonable precautions, such as trading in the middle of the day, etc. One could switch to a more conducive on-line brokerage for the principle of it, but pragmatically, even at two $30 telephone commissions per NG on a large FX conversion you’re still far ahead in absolute dollar amounts compared to the conversion rates offered by most brokerages. As long as you are paying the $30 for the telephone trade, I suppose you might as well get your money’s worth, and get the broker to get his equipment set up ahead of time, i.e the selling of the same number of shares that you are buying, so that you can execute the sell on the other side as soon as the buying bid is fulfilled.
Or else you can simply do the Gambit using DLR/ DLR.U and accept the 0.20% plus $19.90 cost which is still pretty good (I’m assuming they won’t charge a phone commission for the DLR method). This will force you to wait 3 days to sell your DLR after you’ve bought it, but at least you’ve locked in your conversion rate at the moment you buy in.
@francois: I should mention that one of the “reasonable precautions” may not be obvious if you don’t happen to think about it, and that is to make sure that it isn’t a holiday in the other trading country, i.e. the US: both stock exchanges need to be open and trading for the Gambit to be completed, obviously.
@Oldie. yeah not sure i am pragmatic. and since the coach potato removes all emotion from investing, being flaky with my provider is all i have left :-)….
actually the message from TD on the “risky” nature of the NG is consistent with many of their messages, whatever to fit a wrong argument (eg. “e-series”, use of BID price for account value, but only when market is closed, because rest of time you can sell at last sell price (literally what i was told).). this scares me as people rely on this “expertise”.
What bothers me the most about the “risky trade” comment, is that i just did one NG a month ago, and i had under one minute of exposure to market changes. Now their change is adding risk (or costs) to me.
again to me the one thing they do well is the e-Series, which I use for cash-flow balancing during the year.
@francois: The irony of the situation is that, for all TD’s un-co-operativeness regarding Norbert’s Gambit, the stock of their parent company TD has been an ideal vehicle for me on the 2 prior occasions that I needed to exchange a large amount of USD to CAD using NG (Feb 2013 and March 2014). See my May 27, 2014 post. The dollar price was high, making the low bid ask spread even smaller as a percentage. Trading volumes were very high on both TSE and NYSE. Consequently, chunks of stock in the $400K range were bought and sold within seconds of offering, making me wonder if it was worth the precaution of breaking down the larger amount into these more rapidly tradeable tranches.
@Oldie, your post made me laugh. Good to see that TD is good for something. :) That reminds me of something I said to my former TD advisor. I think I said something to the effect that why would I invest *at* TD when they are so efficient at nickel and diming people to death. Why not invest, *in* TD because that has a higher likelihood of success.
@François, you may want to reconsider leaving TD. It’s your only power/voice. I know I am just a curmudgeon but I personally have a rule that if a company ever treats me unfairly, I leave and *never* do business with them again. CIBC did this to me when I was a young (poor) university student. I am not young or poor anymore but since then CIBC has seen no business from me and never will. Ditto with Telus. My premise is that people must vote with they feet.
I loved Canada Trust but they are dead. ING was good. Scoita has treated me well so far; tIme will tell. Out here, some people really like the credit unions.
I am hoping that one day Vanguard will bring low cost, direct investing Mutual Funds to Canada. If only they could duplicate their shareholder ownership model in Canada…
@Brian G… don’t worry their days are numbered. I just have to at least wait the 30 days time line from the last contributions to the e-Series (september cashflow). In mean time i am checking the options, and enjoying informing TD that i am doing so, and always getting reply that I can call them (umm no.) I have started to talk to Scotia, see if the can meet goals better. I actually feel bad, because i find the TDD desk help really helpful, but this is the one thing i am not looking for in a WEB-based solution.
I was looking to purchase 10000 USD ETFs as part of the Canadian couch potato guide (all funds in RRSP). I was wondering whether Norbert’s gambit was still the best way to do a conversion. Here were my calculations:
Current exchange rate through BMOinvestorline:
CAD 0.87
CAD 11432
USD 10000
Using Norbert’s gambit:
DLR 11.17
DLR.u 9.94
cad 0.89
cad 11237.42
us 10000
(subtracting the 9.95×2 for commission)
Am I calculating this correctly? Meaning overall, I’d be saving approximately $215 using NG?
@Ray: The math looks correct to me.
Performed three gambits in last two weeks, 2 in RSP accounts at RBC Direct Investing, and one today in a margin account at TD DI, where there has been comments here on brokerage commissions.
Had called TD’s priority account number to speak to a rep a week ago asking how to do this. He said to make the trade to sell the equity that would provide the cash first, through the website, then phone a trader to execute the currency transaction with the interlisted stock. That way the shares could be bought, journalled over to the opposite currency side, and sold to provide funds immediately for purchasing the desired equity on the other-currency side. All of which could be done without waiting for settlement date to pass on any of the trades, meaning no market or currency risk variations. He also said that there would be no trader commission rate applied for the phone-based trades, but this could well be because we enjoy the premium service level there.
Today, I prepared for the sale by logging on to the BMO live streamer (also premium service there, with this and level II quotes included). Set up all holdings involved to track sales, liquidity, and spreads on these and for the spot exchange rate.
Opted to use DLR/DLR.U, rather than TD stock, as gambit last week involved a ten cent share price drop between the interlisted stock buy and sell, which increased the effective forex rate, where DLR seems to be very stable, even when the markets are more volatile.
My trade today had never done the gambit, and there was a long delay while he consulted a supervisor over the USD pricing of DLR.U while listed on the TSX. He got the go ahead, finally agreeing that the transaction should be on the US side of the account, but on the Canadian market. I assured him that the excellent white paper had made that distinction clear.
In my case, I wanted to exit the iShares EFA, in USD, in New York, so needed to start with buying the DLR.U. Before I hit the sell button on my online order, I asked him if he was ready. Had to bump the lmit order by 2 cents when the order did not complete, but he watched to advise me that the bid price had changed. Instantly, the order completed at the lesser price and he confirmed the USD were waiting in cash.
Rather than him doing both the DLR trades, he suggested that I set up the buy online, estimate the desired units at the ask price and wait for him to set up the instant DLR sale on the Canadian side of the account. My order executed immediately, then he reviewed the sell order to confirm all details with me.
He said the commission would be the online $9.99 rate, and I agreed to have him process it at the current bid price of DLR. Seconds later, he assure me the CAD proceeds were now in the account, and available for the immediate trade that I sought to replace the EFA with.
The story of buying, for the third time, the RBC Quant EAFE ETF, which trades so lightly that 1000 shares is a big day, and has an eleven or twelve cent bid/ask spread is another story, but today I got my purchase done reasonably smoothly, at the full ask price!
Details of the gambit:
Bought 3008 units of DLR.U for 54,118.09 USD (including $9.99 commission)
Sold 3006 units of DLR for 60,678.09 (net of commission).
So, effective forex rate of 0.89189 for my USD.
Simultaneously, the streamer reported spot forex of 0.8908.
That works out to a foreign exchange commission of 18.9 bps, if my calculations are accurate. Since most people are probably buying USD with their gambit, I thought expressing the reciprocal value might be more meaningful.
P.S. When I did the RBC DI gambit recentlly, I asked for USD proceeds for three buy levels:
25K – 1.1137 or 0.8979 (114 bps)
50K – 1.1177 or 0.8946 (81 bps)
100K – 1.1220 or 0.8913 (48 bps)
Premium is amount over spot rate of 0.8865 at the time.
Downside is that the currency rate is frozen, but funds not converted until after settlement of the original trade, three days hence. A no brainer, as market risk to buy desired security four or more days in the future is too speculative for me.
One More Norbert’s Gambit: It has been remarked on this site that the most economical currency exchange is none at all, and in this context I have to explain that my circumstances have changed since I did my “last ever” Norbert’s Gambit in March of this year, otherwise I would have stuck to my guns. As it was, my revised asset management plan required about $36k in USD which had to be converted from CAD.
I had become familiar with the method of purchasing TD ETF on the TSE and selling immediately on the NYSE on the two occasions that I have mentioned here (October 9). Because these prior Gambits required a lot of string pulling on account of the fact that my professional association financial management arm was not really set up for this, and was reluctant to my making a habit of this, I decided that I would use the supposedly less risky, less hassle DLR/DLR.U method, as I could live with the higher percentage cost of the transaction, as the amount to be exchanged was low enough to make the absolute cost acceptable, and I could also live with the 3 days waiting for between trades because it would not affect the foreign exchange conversion rate.
Just to be sure that I was not permitted to somehow sell the DLR in USD immediately after I purchased the ETF in CAD, I phoned the trade desk, and although the first person I talked to mistakenly said that I should be able to transfer the DLR units immediately to the USD account and sell it, it turned out I couldn’t. I mention this to remind fellow investors that despite the familiarity that some platforms have with Norbert’s Gambit, it still seems like a mystery to the front line advisors at least some dealers.
So after 3 days I phoned and had the 3600 units journaled over to the US side and I went through the process of selling them. The surprising thing to me, was that I expected them to have a very stable USD price, being, in effect as I understood it, based on the the cost of the US dollar in US dollars, with a small adjustment made to account for the 0.45% MER resulting in a regular one cent decline in price every couple of months or so. The trading price had ranged from $9.96 some time on November 12 to $9.93 some time on November 13. I put a limit order at $9.93 and was lucky to sell all at $9.94 today. Looking at the price graphs over 3 months, I was only halfway along the time segment where a definite one cent price drop step was expected, so why the market could accept a 3 cent fluctuation in 2 days puzzles me.
One annoyance is that although I have not experienced any real currency loss, the price in DLR when sold was briefly reported on my Canadian Dollar side, even though I sold it in USD; that is, it documents a loss in that I bought at CAD$11.31 and sold when the CAD price was $11.27. I notice that this Canadian Dollar listing seems to have disappeared now, but it will be interesting to see what my T3s and statements of investment dispositions will show — in prior occasions holding TD for minutes, or even seconds I have not made a declarable profit or loss, and it did not occur to me that by holding DLR for 3 days exposed me to tax considerations. Minor, to be sure, but unforeseen.
If I had to do it again, I would really prefer to avoid DLR and do NG using TD like I did before; but since this is discouraged by the brokerage I am using, I am in a bit of a quandry.
So in the the light of today’s experience I have to report that in my situation, an unusual one, perhaps, but one that would affect any other user of the on-line trading platform of the financial management firm of my professional association or any similar outfit that is unprepared to deal routinely with same-day (same minute, actually) journaling and trading of recently purchased ETFs such as TD, is unsatisfactory for Norbert’s Gambit, and may require switching companies.
@Brian G: OMG — I was so focused on not screwing up the Gambit that I made a different error. My total US investment has just barely nudged over the 100k mark, which I definitely didn’t intend to do. Do you know if once you file the T1135 whether that means you are on the IRS radar for the rest of your life?If I sell off enough US asset first thing Monday morning to get below the 100k threshold (I am literally only a couple hundred dollars over) with a healthy buffer to protect against asset growth back beyond 100k, and then don’t file a T1135, is there any possibility they will find out? (i.e. what are the reporting mechanisms that the financial institutions must follow through to rat on you?) This is a complication I do not need.
@Brian G: Ignore my last comment — I was totally confused. I was somehow thinking of the threshold for exposure to US Estate Taxes for Canadians who die holding US stocks, which is a completely different thing. The T1135 is of course has nothing to do with that, and, as I understand it, for the 2014 tax year requires declaration of foreign assets if the total acquisition cost exceeds 100k in Canadian dollars.
@Oldie, good to see that you resolved your own problem. :) I am no tax expert but yes, my understanding is that you must file a T1135 once your total acquisition cost of all of your foreign assets exceed $100k CAD during any part of the year. Interestingly, you mail it in on paper and it cannot be filed electronically with the rest of your return. Also, the penalties for not filing can be substantial and will accumulate. They are so substantial, I often wonder if everyone shouldn’t just file even when under $100k just to be safe.
The tricky part here is what does the CRA consider a foreign asset. For example, if I did a $100,001 CAD Norbert’s Gambit with DLR and DLR.U from CAD to USD at a Canadian brokerage, my understanding is this wouldn’t trigger a need to file a T1135. However, if you did the same with TD shares on the Toronto and NYSE exchanges; this would trigger a need to file a T1135 because at some point you would hold foreign shares on a foreign exchange. Somewhat oddly, I had an expert at the CRA tell me that holding USD (Cash) in a USD denominated checking account at a Canadian bank or in a USD Cash account at a Canadian brokerage is not considered to be a foreign asset. Apparently, what is and is not a foreign asset is not always obvious, so an expert should probably be consulted.
Again, I am not tax expert and given the possible penalties of not filing when needed and no penalties for filing unnecessarily, it’s probably best to just file a T1135 just to be safe when there might be ambiguity.
Oh, I should mention that I do my own taxes and whenever I’ve had a question about how to file, I just phone the CRA and ask. Overall, they’ve always been helpful.
@Brian G: I know some rules changed and there is a specific requirement to file T1135 for 2014. But what was the T1135 requirement for 2013?
@Oldie, you’ve always needed to file the T1135. The T1135 has been around for a long time; 15+ years. In the 2013, the Federal Budget just made it an even more complex to form to fill out. As usual, the government never makes life simpler or less complicated as time marches forward.
Thank you for the great white paper on Norbert’s Gambit with TD – I used it successfully on more than one occasion! Really liked how the instructions were so clear and detailed – very useful as I am a bit of a newbie…
Just recently, TD introduced new US $ registered accounts and sent me a letter specifying that they ‘will no longer automatically buy/sell US$ Money Market in your RSP or TFSA to eliminate currency conversion charges’. I am wondering how this impacts the Norbert Gambit instructions in the white paper? Thank you
Hello,
I am forced to use HSBC InvestDirect as my brokerage, because my employer sponsored RRSP’s only links to HSBC.
I haven’t seen anything online about how to use Norbert’s Gambit on HSBC InvestDirect, do you know if it s possible, or how would you recommend I proceed to figure out if it is possible?
Thanks,
Steve