Norbert’s Gambit: The Cheapest Way To Trade US Dollars

I regularly use the Norbert’s Gambit approach to convert USD to CAD (and vice versa) through RBC Direct Investing.

The process is smooth through RBC but not all discount brokers are created equal and you need to find out if your discount broker can support it.

For example, Questrade does support the strategy but the journaling of the shares is not automated and you need to contact them.

Make sure the Norbert’s Gambit can be done smoothly by asking your discount broker about the ability to journal the shares.

What you need to understand with DLR and DLR.U is that they both trade on the Toronto Stock Exchange (TSX). If your discount broker doesn’t support the process and it’s important to you, you can always consider switching discount broker.

The steps to exchange USD currency to CAD dollars using DLR as the ETF (Horizons US Dollar Currency ETF). As mentioned earlier, the steps are based on the experience with RBC Direct Investing and other discount brokers may have extra steps and you should make sure your discount broker has dual-currency support for the account.

How much do you save with the Norbert Gambit?

You save the spread minus the 2 transaction cost when using DLR and DLR.U. The Norbert’s Gambit can be done with any dual-traded stocks but I have found there is more fluctuation in the stock price.

Let’s say you want to exchange $1,000 Canadian dollars to US dollars and the exchange rate is around 1.28 Canadian dollars to buy $1 US dollar. You would expect to receive $781.25 USD but that’s not quite true since foreign exchange includes a spread each way as profit for the exchange houses.

With the Norbert’s Gambit, the spread is very minimal but you have to execute a buy and sell order. The resulting amount would be closer to $761.25.

If you were to use a bank foreign exchange, your spread would be higher than if you were to use a forex house.

Norbert’s Gambit with DLR through your discount broker will get you the best exchange rate.

Here is what it looked like with RBC when exchanging USD to CAD when the rate is 1.32. You can expect a similar cost going the other way.

• Through banking, $1000 would have given me $1260 (cost of .06 cents)
• Through the discount broker, $1000 would have given me $1280 (cost of .04 cents)
• With Norbert’s Gambit, I get $1300 (cost of .02 cents) (including the fees of $9.95 each way)

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Norbert’s Gambit with RBC Direct Investing

Using DLR to convert currency with RBC Direct Investing will take 3 steps. It’s very simple.

Step 1 – Purchase DLR.U on the TSX

Once the US currency is in the account, initiate a purchase transaction of DLR.U.Make sure you choose the USD account to make the transaction. Note that it trades on the TSX and is in US dollars, unlike other stocks that are dual-traded between the NYSE and TSX.

A wise transaction tip is to always put a limit on your stock trades. I put my limit at $9.95 US and waited 2 days for all the shares to be purchased. The limit is up to you to decide on. I tend to pick the ask limit and that’s just to ensure I don’t pay more based on market transactions.

Step 2 – Sell DLR on the TSX

As soon as the transaction is filled, I initiate the sell for DLR in Canadian dollars for the number of shares I purchased. Again, I use a limit price of $13.35 CDN and I use the CAD dollar account to execute the transaction.

There was a warning of currency exchange rate when I put the sell order but I verified with RBC Direct Investing that there would be no fees. Since DLR.U and DLR are exactly the same shares in different currency, there are no fees.

Step 3 – Get Your Money

Unfortunately, you have to wait for the transactions to settle to withdraw the money from the account and it takes approximately 2 days. If you want to convert your currency from CAD to USD, you just need to purchase DLR first and then sell DLR.U.

If you pick the wrong account to make a transaction, you will incur an immediate currency transaction by the discount broker, double check the accounts you make the transactions from. If you want to convert CDN to USD, just start with buying DLR and then you just need to sell DLR.U.

Norbert’s Gambit with Questrade

Step 1 – Purchase DLR.TO on the TSX

Select ‘TRADE’ (the big green button) and enter DLR.TO in the order entry form. Based on the amount you have to exchange, calculate the number of shares you can buy. I usually use the ‘ask’ price to calculate the number of shares and I use the limit order.

The ETF purchase will have a transaction cost of $0 but it may include an ECN fee (learn more about ECN fees – reading/removing liquidity).

Step 2 – Wait for the Transaction to Settle

The transaction will settle after 2 business days (T+2). It means you officially have the shares in your account. Once you see DLR.TO in your account, contact Questrade by phone or chat to journal the shares over as DLR.U.TO.

Step 3 – Sell DLR.U.TO on the TSX

Once you see DLR.U.TO in your account, you can place your sell order with the same number of shares. The transaction cost is the Questrade’s selling fee plus the ECN fees in the currency of the trade.

Step 4 – Get Your Money

You will have to wait for the transaction to settle (T+2) and then you can transfer your money out or use it to purchase your favorite dividend stocks!

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Norbert’s Gambit with TD Direct Investing

Step 1 – Set up Dual-Currency Account

Make sure you are set up with a dual-currency account. You may have to call in to have it set up or use your favorite communication channel with the discount broker.

Step 2 – Purchase DLR.TO on the TSX

Select your account to make the purchase from, enter the symbol DLR and select the ETF. It should show the quote on the right side. Based on the amount you have to exchange, calculate the number of shares you can buy. I usually use the ‘ask’ price to calculate the number of shares and I use the limit order. Don’t forget to deduct $10 from the total to cover the trade cost.

Step 3 – Wait for the Transaction to Settle

The transaction will settle after 2 business days (T+2). It means you officially have the shares in your account. After 2 days, contact TD Direct Investing to have the shares journaled over as DLR.U.TO. You are effectively moving the shares from your CAD account to your USD account under DLR.U.TO (or vice-versa).

This step will take another day to be effective

Step 4 – Sell DLR.U.TO on the TSX

Once you see DLR.U.TO in your account, you can place your sell order with the same number of shares. I tend to use the limit order based on the price at the time I am making the trade.

Step 5 – Get Your Money

You will have to wait for the transaction to settle (T+2) and then you can transfer your money out or use it to purchase your next investment.

Norbert’s Gambit Results

I have great results and the rate is very competitive. I have tried local currency exchange businesses and also looked at xe.com.

Obviously, the cost of the transactions approximate to $20 and requires a decent amount to ensure you are not overpaying in fees. Otherwise going to your local currency exchange might be better.

I am very pleased to use RBC Direct Investing and DLR for my currency exchange even if the total time is approximately 3 business days before I can access the money and a bit longer with other discount brokers.