Norbert’s gambit is a way to exchange Canadian ($CAD) and US Dollars ($USD) using ETFs at a discount brokerage. It requires a few steps to execute and a couple of days for the money to move. Using Qtrade, that may only take a few minutes of your and be fully online (no humans or phone calls). This extremely cost effective when moving larger sums between your $CAD and $USD trading accounts.
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 and walk through pretty much every click of the mouse. I know how those simple things can ironically be daunting when moving money.
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 (more tax-efficient in an RRSP& generally lower fees) or if you like to spend $USD. Both apply to me.
The Gambit Moves.
First, you buy a security that has both a $CAD and $USD priced version. For example, Royal Bank of Canada is listed on the Toronto Stock Exchange as RY in $CAD and on the US exchange as RY in $USD. Another example is Horizon’s ETF that tracks the US Dollar. Both versions are listed on the Toronto exchange. DLR is priced in $CAD and DLR.U is priced $USD.
Next, you have the security transferred from your $CAD investment account to the $USD version of the account.
Finally, you have your brokerage change the security from one version to the other. This is done on paper (or electrons) and is called “booking over”. For example, I could have DLR booked over to DLR.U when executing Norbert’s Gambit to convert $CAD to $USD. I would then sell it in $USD in my $USD account.
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). 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 sitting. That said, the fact that it takes two sessions on a computer is likely why people perceive it as a complex hassle. Plus, the jargon like “booking over”. Using Norbert’s Gambit via the Qtrade direct investing platform, it is really one session to set it up and the second session can be done at the same time as you plan to invest the money.
For comparison, using many foreign exchange services requires a phone call and printing/scanning/emailing of declaration forms which is equally cumbersome. You must then move that money from your bank account to your brokerage investment account to invest it. Same with using an exchange via the bank.
This simplest and fastest way to move CAD and USD between Qtrade investment accounts of the same type (RRSP/TFSA/cash), but different currencies, is the “Convert CAD/USD” feature in the Transfer Funds section of their site (screenshot below). However, that also comes at a cost somewhere between Norbert’s Gambit and using your bank. For small amounts of money (<$1000), it is pretty time/cost effective
Time & Cost Comparison for Currency Exchange Strategies
The cost for Norbert’s Gambit is ~$15 in trading fees plus ~0.1-0.2% hidden in the bid-ask spread. In contrast, an exchange using your bank buries the cost in their bid-ask spread and it usually runs ~2.5% of the amount transferred. I have also used exchange house services which have about a 0.2-0.5% spread for sums that I would consider using Norbert’s Gambit for. Converting via Qtrade’s currency conversion has the cost in the spread. That varies by market and amount, but typically runs in the 1-1.9% range for amounts under $25K. Larger amounts have a tighter pricing spread for banks and brokerages. The cost and time comparison for different strategies is summarized in the table below.
A closer look at Norbert’s Gambit’s Cost & Timeline
Time spent depends on the platform used.
The time spent depends heavily on the brokerage that you use. I have used different ones. With Interactive Brokers, I was able to exchange CAD and USD directly on the currency exchange. That is by far the fastest and cheapest way. However, it was pretty intimidating, and I found their platform complex and customer service not great. I have used a bank-based discount brokerage for Nobert’s Gambit also. It was pretty quick to transfer, but I spent a fair bit of time on the phone. Plus, I hate using phones. With Qtrade, it takes me under ten minutes, and I can do it all online.
The stock or ETF that you use also influences the timeline.
The stock or ETF used also influences the timeline & risk.
You must wait for the trade to settle before you can transfer or “book-over” the security that you are using. For DLR/DLR.U, that is the trade-day plus the end of the next day (T+1). For most other ETFs and stocks, the settlement happens an extra day after that (trade day plus two or T+2).
So, using DLR/DLR.U reduces the time lag and risk of being out of the stock market by a day. The one point to be careful of using DLR (T+1 settlement) is if you are selling a stock/ETF that has the usual T+2 settlement, then you need to wait a day before buying DLR. Otherwise, your DLR purchase would settle a day before the cash available from whatever you sold is available to pay for it. Some brokerages don’t warn about it – they just charge interest. For Qtrade, there is a warning box to tick off and if not a margin account, the trade would get rejected.
Using DLR vs other stocks traded on both exchanges.
The other risk is the price volatility of the underlying security. For DLR/DLR.U, the price fluctuates with the $USD:$CAD. So, it is basically a pure currency risk. The price of the $USD may go up or down over the course of the maneuver. However, that is irrelevant since you are choosing to make the exchange and cannot realistically time whether the currency will go up or down over that period. That is market timing.
The downside of DLR is that it has a bid-ask spread of ~0.1% while some really liquid high-volume securities may have a slightly smaller one. However, they would also be subject to the price changes of the company or companies held. That is market-timing for both the currency and the security!
My behavioral savings: Qtrade is 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 Using Qtrade: Step by Step With Screenshots
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.
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 (two for DLR) days for trade to settle.
Confirm in your account and account history that the trade settled. [Update: I have since done it several times where I do step 4 shortly after buying the DLR (same day). It then automatically transfers when the trade settles. That is usually at the end of the day two days later.]
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.
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. [Update: I have since done it several times where I do step 4 shortly after buying the DLR (same day). It then automatically transfers when the trade settles. That is usually at the end of the day two days later.]
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.
After that, the cash shows up as $USD in the USD RRSP. Done.