Norbert’s Gambit: The Ultimate Step By Step Guide

Dividend Earner

Dividend Earner

Updated on

7 min read Affiliate Disclosure

I regularly use Norbert’s Gambit approach to convert USD to CAD (and vice versa) through RBC Direct Investing. It’s the best way for Canadian investors to avoid currency conversion fees.

Why do this? To save money on transaction fees. The exchange rate between the CAD and USD is what it is. You cannot control that. What you can control is the fee on top of the exchange rate that financial institutions take called a spread. Your goal is to have the smallest spread and you can achieve that with Norbert’s Gambit dual share trade.

Not all discount brokers are equal the little things make them different, and with currency exchange, you may not want the cheapest trading platform anymore …

What Is Norbert’s Gambit?

In simplicity, it’s the ability to trade a stock on both exchanges between a CAD and USD account. Many companies have shares trading on a US and Canadian exchange and since it’s the same company, many brokers recognize you are trading the same share but across accounts.

The technical term behind the scene is ‘journaling’ which references moving a share between the exchanges which essentially moves it from one currency to the other.

Important Notes With Nortbert’s Gambit

First of all, know that the process is smooth with RBC Direct Investing (a popular discount broker) but not all trading platforms are created equal and you need to find out if yours can support executing the Norber’s Gambit to save on foreign exchange fees.

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

What you need to understand about 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) are outlined below. 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 brokerage account has dual-currency support.

Make sure the Norbert’s Gambit can be done smoothly by asking your discount broker about the ability to journal shares as it simplifies the time and steps it takes.

How Much Can You Save With the Norbert’s Gambit?

You save the spread minus the two transaction costs when using DLR and DLR.U. The Norbert’s Gambit can be done with any dual-traded stocks (a.k.a. inter-listed stocks) but I have found there is more fluctuation in the stock price between the US stocks and their TSX equivalent. The spread is not as tight as it can be with DLR shares.

Let’s say you want to exchange 1,000 Canadian dollars for U.S. dollars and the exchange rate is around 1.28 Canadian dollars to buy $1 U.S. dollars. You would expect to receive USD 781.25 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. In short, the smaller the spread, the smaller your currency exchange fees are.

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 brokerage fees of $9.95 each way)

Norbert’s Gambit Requirements

This unique currency conversion technique is like a foreign exchange service enabled by the various stock exchanges. What you need to make this happen is as follows:

  • A trading platform with journalling capabilities. Preferably one you don’t need to call to journal the shares. FYI – Royal Bank with RBC Direct Investing is the best.
  • An investment account with both Canadian and U.S. holdings. Any of the accounts will work such as the TFSA account, the RRSP account, or a non-registered account. You will probably need a U.S. bank account to transfer in and out so not just any Canadian financial institution will work.

Norbert’s Gambit with RBC Direct Investing

Using the simple DLR ETF (Horizons U.S. Dollar Currency ETF) as a foreign currency exchange tool with RBC Direct Investing will take 3 steps. It’s a very simple, and effective way to exchange your money. Don’t overthink the

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 Canadian stocks that are interlisted on the New York Stock Exchange (NYSE).

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.

Norbert's Gambit DLR - USD

Step 2 – Sell DLR on the TSX

As soon as the transaction is filled, I initiate the sale 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 the currency exchange rate when I put in the sell order but I verified with RBC Direct Investing that there would be no commission fees. Since DLR.U and DLR are the same shares in different currencies, there are no extra fees for journalling the shares.

Norbert's Gambit DLR - CAD

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 Canadian dollars to U.S. dollars, 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.

Questrade - DLR Order Entry Form

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 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 favourite dividend stocks!


Norbert’s Gambit with TD Direct Investing

Step 1 – Set up a 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 favourite communication channel with the discount broker.

Step 2 – Purchase DLR.TO on the TSX

Select your account to 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 had great results and the FX rate is very competitive. I have tried local currency exchange businesses and also looked at xe.com.

The cost of the transactions is approximately $20 and requires a decent amount to ensure you are not overpaying in transaction 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.