Norbert’s Gambit Using MD Direct or Qtrade

Norbert’s Gambit or Q-Bert’s Gambit?

Norbert's Gambit using Qtrade

Norbert’s gambit is a way to exchange Canadian and US dollars extremely cheaply using a discount brokerage. Whenever I hear about Norbert’s Gambit, it makes me think of Q-Bert.

Q-Bert was a computer game character from the 1980s. At the time, he represented cutting edge complexity because Q-Bert jumped up and down on blocks drawn in [dramatic pause].. 3D. Similarly, most people think Norbert’s Gambit is dauntingly complex. I found out that it is easier to do than a high-score on Q-Bert was for me.

Partly of why I think of Q-Bert, is the fact that I use MD Direct which is powered by Qtrade. Yeah, I know, kind of cheesy and silly. But, cheesy and silly is how I roll.

I could find nice videos about how to do Norbert’s Gambit for most discount brokers -except MD Direct or Qtrade. To quote Q-Bert: “@!#?@!” I further curse and swear like Q-Bert when I think of how we get gouged by currency exchange fees: @!#?@!rip-off@!#?@!criminals@!#?@!

What is Norbert’s Gambit?

Norbert’s gambit is a maneuver to exchange $CAD and $USD through a discount brokerage without getting fleeced by fees. This can be useful if you want to take advantage of investing in US-listed ETFs or if you like to spend $USD. Both apply to me.

The process may seem intimidating or a hassle. It did to me when first reading and hearing about it. However, it is surprisingly easy. I have broken it up into detailed steps in this post. The amount of detail could make it seem complicated, but really that is just because I walk through pretty much every click of the mouse. I know how those simply things can ironically be daunting.

Learning to do this can save you the usual 1.5-2.5% foreign currency exchange fees. That adds up very quickly.

A “gambit” is a calculated move.

Executing Norbert’s gambit isn’t something that can be done when you want the money today or tomorrow. Fortunately, successful investing is about the long-term (years) and a few days here or there does not matter in the grand scheme.

Even though it is done over a few days, it really only takes a few minutes per day. That said, the fact that it takes two or three sessions on a computer a few days apart is likely why people perceive it as a complex hassle. However, for comparison, using many foreign exchange services requires a phone call and printing/scanning/emailing of declaration forms which is equally cumbersome.

The other reason is human contact and jargon.

Fortunately, Qtrade allows you do to Norbert’s Gambit simply and fully online. No pesky human contact.

I am not a “phone person”. My dislike and discomfort for phoning people skyrockets further if I have to call a stranger and ask for some type of service. That is magnified, if it is on the edge of my knowledge comfort zone and I am basically doing something to bypass a process their company makes money from (currency exchange fleecing). “Hi, I am calling to make more work for you so that I can circumvent how your company makes money.” Awkward.

So, one of the rate-limiting steps of using Norbert’s gambit for me was that you are supposed to call your trade center and ask them to “book-over” your CAD-denominated holding into a USD-denominated holding. All with a confident Jedi-mind-trick-voice.

Norbert's Gambit

Norbert’s Gambit Using Qtrade: Step by step with screenshots

Disclosure (and to cover my butt): I have my accounts at MD Direct. However, I have no other financial relationship with them and anything that I write is not affiliated with MD Direct or Qtrade in any way. Further, I am not a financial professional. The products I am using are for illustrative purposes. They work for me. As a DIY investor, you must manage your own affairs or seek help as needed (beyond some looney doctor on the internet).

Step 1: You have cash in your CAD Account.

I will use my CAD RRSP to demonstrate since the benefits of US-listed ETFs are greatest in an RRSP. You will note that I have nick-named my RRSP to make it easier to identify instead of the alphanumeric code that Qtrade assigns. You can do that too in the “account preferences” section of the Qtrade service center. I will simulate exchanging $10K CAD for mathematical ease.

Step 2: Buy DLR on the Toronto Stock Exchange.

DLR is the Horizons $USD tracking ETF that is listed on the Canadian exchange. I am using DLR since it is directly linked to what I am doing (currency exchange) and not fluctuations of a specific company or market.

Navigate to the trade equities tab.

That will get you to the trading screen. It should be on the Canadian market by default. Toggle the action tab to “buy” and the order type tab to “limit order”. Enter in DLR as the symbol for the Canadian-listed ETF that holds US dollars.

Next, enter the limit price (the most you are willing to pay). I generally make that the same as the asking price because I hate partially filled orders and spending the time and commission twice. In this case, I would enter $13.50.

For the quantity to buy, I divided my money ($10K) by the limit price and round down. For this example, $10000/$13.50=741. So, I would use 740. That would also leave $10 – enough to cover the $8.45 commission.

USD exchange Qtrade

Then, click review order, double check that it all adds up, and click submit order. It should fill pretty quickly. However, you now need to wait at least three days for the trade to officially “settle”. That is the date of the trade plus two business days. Perhaps you could push before then, but I have not tried that.

Step 3: Wait three days for trade to settle.

Norberts gambit

Confirm in your account and account history that the trade settled.

Step 4: Transfer The DLR to your USD account.

Go to the Transfer funds menu item.

Select “Move Securities” which allows you to transfer between your USD and CAD account of the same type (in this case RRSP).

Select your stuff to transfer from the drop-down menus.

exchange US dollars

Step 5: Wait for it to transfer. May take a day.

This could take a day. My account showed it transferred the same day when I did it, but I actually just left it and came back the next day. I had to mow my stupidly huge lawn.

Step 6: Find it in your USD Account & Sell it for US Dollars

This is where there can be confusion. The USD version of DLR is DLR.U. However, it will still show up in your USD account as DLR (not DLR.U) with the correct number of units you bought and the value displayed in USD. Don’t worry, all is ok despite this weird display. You can hit the “sell” tab to go to the trade equities screen below. I needed to then manually change the DLR to DLR.U to make sure it sold to $USD.

norbert's gambit Qtrade

After that, the cash shows up as $USD in the USD RRSP.

How long does Norbert’s Gambit take and how much does it save?

Well, it was simple enough that I needed to put some padding at the beginning of this article to hit 1000 words and rank better in search engines. While the dates in my recreated screenshots are from today, I actually did this last month. I wanted to see that everything cleared and I didn’t get any awkward phone calls. In all, it took me three 5-minute computer sessions.

How much money did I save for 15 minutes of my time?

The financial cost was ~$17. For the $10K exchanged, that is 0.17%. For comparison, the exchange fee for $10K at Qtrade is 1.75% or $175. So, I saved ~$150 for about 15 minutes of work. Now, I did do it over 3 three days. So, there was more inefficiency than that in reality. But still, that would be $300/h even if it took me twice as long. Since the fees are fixed at $17, it becomes more efficient as the amount transferred increases.

On the other end of the scale, $1K would break even. Under $1K would cost more in the trading fees than the usual percentage fee.

What if the DLR drops over those three days?

This seems to come up in discussions. However, I think it is irrelevant. Unless you can predict currency changes (which you wouldn’t be reading this blog if you could), then these fluctuations are random. You may lose 0.5% this time or gain it another time. It should average out over time with multiple transactions. In contrast, fees are not random – and you can control them through Norbert’s Gambit.

9 comments

  1. Nice article! Glad to see one brokerage has rolled out an online solution to replace the annoying phone call.

    With regard to the risk of DLR falling it’s not a significant risk for the following reasons. DLR mainly holds US Treasury Bills which are very stable financial instruments. US T-Bills are denominated in USD but when you look up the ticker price on the TSX DLR is priced in CAD which of course fluctuates with the exchange rate. What this means is that if you follow the price of DLR it goes up and down in CAD but if you look at DLR.U its price in USD is very stable.

    In other words, once you buy, say, 500 units of DLR, it doesn’t matter after that point what the CAD:USD exchange rate does. CAD could go to zero in the intervening 3 days but you’ll still have the same 500 units of DLR which you can sell as DLR.U and get the USD. A good analogy is to think of one unit of DLR as a $10 bill in USD – once you’ve bought the $10 bill, its intrinisic value in USD does not change even if its CAD value does. Buying DLR “locks in” the CAD:USD exchange rate at the time you buy it. (Note that doing the reverse Norbert Transaction, buying DLR.U in USD and selling DLR to get CAD, does not protect you from currency exchange fluctuations).

    1. Thanks Dr. H! That is a great way to frame it. I agree that it is really a non-issue, but I kept seeing it mentioned in articles/comments as I was researching. It would be more of a potential issue if using stocks with a Can/US version. DLR does really seem the ideal method to me.
      -LD

  2. i use transferwise for several years
    it is best solution for currency exchange and travel money

    first transaction is freewith this link

    not spam but personal experience
    it is like p2p transactions with forex rate

    1. Thanks Ivan. Can’t say that I have used it. The fee for $10K using that site is ~0.7%. Much better than the banks, but still higher than Norbert’s Gambit. I have used similar services, like Knightsbridge. The time spent arranging the accounts and transfers etc. was about 10 minutes (longer the first time for set up) and I had to talk to a human. Still, was overall pretty convenient.

      The best exchange method that I have used is actually Interactive Brokers where you can exchange the currency directly. I recently did $100K CAD to USD for $2.99 Canadian. That is 0.003% and it took 2 minutes, but the interface was a bit more intimidating than what the average retail investor is probably used to. Also useful for EUROs if that is a need.
      -LD

      1. This post comes at a good time for me. I’m fairly new to Canada and have some ongoing financial obligations back in the states. I’ll be needing to exchange and transfer about 30k CAD per year to my US bank account. Transferwise is definitely better than my banks, but still a few hundred bucks per year.

        Based on these comments, I’ve looked into Interactive Brokers. It looks like they have some account fees and minimum balances and the interface looks confusing to me.

        It also looks like Q-trade charges $25 CAD per quarter for balances less than 25k CAD (I’ll be setting up an RRSP at some point next year, so maybe this will serve that purpose).

        Does anyone know how Questrade works for Norbert’s gambit? Any advise is much appreciated.

        Thanks a lot!

        1. Hey Sean. There is a video for Norbit’s Gambit for Questrade https://www.canadianportfoliomanagerblog.com/diy-investing-tutorials/

          The other issue with using Interactive Brokers is that is you want to get cash out, then there is a delay. If you put money into IB from one bank account (in CAD) then buy USD and try to send out to your USD bank account they have 45 day wait period. The reason is linked to sending money out to a different bank account from which it was brought in.

          Good luck and thanks for reading!
          -LD

  3. Thank you again Loonie Doc for another great post. I must confess I have not used Norberts gambit (love the name though!).
    I have transferred my investing/trading accounts to Interactive Brokers which has a ridiculously low forex fee, as you suggested. Further their trade fees are insanely low as well, often $1 per lot. This was worth the small effort for a lifetime of trading fees and forex fees when buying USD listed ETFs. As the numbers get large over decades, these fees turn into large sums of money to be saved. The banks make a handsome profit with hidden forex fees. Just FYI Interactive brokers doesnt allow for RESPs and LIRA accounts.
    thanks!

  4. I, too, was awed by the 3D advances that Q-bert brought to the world of 1980s video games, and I’m touched to see I’m not alone.

    It was like playing with an interactive M.C. Escher painting, and no amount of recreating an actual disembowelment on a modern shootemup game will touch that excitement I felt.

    Passing this article onto my Canadian family members!

    Fondly,

    CD

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