How To Save on Foreign Exchange Fees Using Norbert’s Gambit With Questrade
If you’re thinking about exchanging large sums of money – anything over $1K – from Canadian to USD and don’t want to get hit hard by the foreign exchange rates that you will incur with such a transaction, then you might want to consider using Norbert‘s Gambit with Questrade.
This alternative method takes advantage of interlisted stocks, wherein the other options may leave you holding the short end of the stick.
Five Steps to Using Norbert's Gambit
So you've decided to exchange your CAD$ dollars into USD$ using Norbert’s Gambit but first, you may have some questions.
Yes, it's perfectly legal and used regularly by many novice and seasoned brokers alike who are looking to exchange CAD currencies to USD without paying the pricey FX (foreign exchange) fees imposed by most financial institutions.
What's more, it's an extraordinarily cost-effective way to exchange your CAD currency into USD and vice versa.
Is Norbert's Gambit Legal?
One of the perks to using Questrade's online brokerage is that there is never any charge to buy ETF's! Selling ETFs will incur a minimum fee of $4.95 (plus ECN fees which are usually only pennies per trade).
For most CDN to USD currency "Gambits" - in and around $5000 USD - it will cost you just over $5 USD including ECN fees. At the end of the day, it all depends on the quantity of ETFs sold. That being said, the commissions will always be capped at $9.95, even if you are exchanging 6 figures or more.
The ECN fee's on a six-figure sell transaction (as an example using $100,000) will run you at about $25-$30USD, however, this far outweighs the several thousand you will end up saving.
Ballparking it, how much will the Questrade ETF fees be?
Yes, but not by much considering the amount you will save when compared to:
- Exchanging funds directly at the bank
- Through credit card purchases
- Buying or selling US exchange-listed stocks or ETFs with Canadian funds
That last one, buying and selling US securities with Canadian funds, will quickly burn through your hard-earned cash. In contrast, using Norbert's Gambit greatly minimizes these losses, even more so as the amount you exchange increases.
Won't the costs increase as the amount exchanged rises?
For most Canadian online brokers, each time you buy or sell US securities with a CAD-funded account, you'll get dinged with a conversion fee of around 1.5% or possibly higher. Those fees can add up very quickly and over many years, will just plain bleed you dry.
Using your Questrade account you can execute a Norbert's Gambit transaction and exchange your CAD currency to USD for a reduced cost. Then you can buy and sell any US-listed securities you choose.
What's more, if you use a Questrade RRSP account to hold your cash and earnings, then any capital gains you realize inside of this account are deemed non-taxable.
Why not just let your broker do the exchange for you when purchasing US exchange listed stocks or ETFs?
In this article, I’ll explain what Norbert‘s Gambit is, when you should use it and when you shouldn’t. In addition, I'll list all of the costs involved including comparisons to other methods and financial institutions.
Moreover, I will teach you how to use Norbert’s Gambit with Questrade and explain why this approach has an advantage over others in specific situations.
What is Norbert’s Gambit?
Norbert‘s Gambit is a highly cost-effective way to exchange Canadian dollars into US dollars, allowing you to avoid the 2% conversion fees that most banks and financial institutions (including brokerages) will charge when exchanging currencies.
This technique leverages journaling, which is the process of swapping shares that are cross-listed on two exchanges that use denominations of different currencies.
If that’s confusing, think of any company that is listed on both the TSX and the NYSE. We can use Enbridge Gas as an example. You can purchase shares of Enbridge on the TSX in CAD currency and then have your broker swap them for the USD equivalent on the NYSE.
Once this swapping or “journaling” is complete you will have the exact same quantity of shares that you held in Canadian currency except now it will be valued in USD.
Now that you own shares of Enbridge in US dollars you can sell them for cash. From here you can either deposit your cash into a US bank account or keep it in your brokerage account to purchase stocks, ETFs or any other securities you choose, in USD.
It’s well-known that brokers offer journalling free of charge. However, you may be charged a commission when you buy and/or when you sell those shares.
Using Questrade With Norbert’s Gambit Offers 2 Big Advantages Over Most Other Online Brokerages.
The first one being they don’t charge a commission when you buy an ETF, only when you sell.
When you do sell, these commissions are favourably low and can range anywhere between $5 to $10. That being said for most transactions especially those new to Norbert’s Gambit it will be closer to $5.50 if you include the ECN fees.
The second being that Questrade allows you to hold funds in US dollars. This is a requirement to use the Norbert‘s Gambit technique. Many other brokerages allow US-funded accounts however they usually have requirements such as a minimum regular balance that can be upwards of $10,000 or more.
As well many brokerages will often charge either a higher commission for selling shares, a commission for buying shares or quite often a combination of both.
So let's get started.
The first thing you'll want to do is open an account that supports holding funds in both CAD and USD currency.
Step 1: Open an Account With Questrade
To get started, you’re going to want to open up an account and with Questrade. There’s no minimum balance required to open an account however, when you are ready to begin trading you’ll need to deposit at least $1000 in Canadian currency to gain access into the market and execute buy and sell transactions.
I personally have an account with them and have used Norbert‘s Gambit on several occasions to exchange CAD to USD (or from USD to CAD, more on that below).
I prefer using their Questrade Self-Directed Investing Platform specifically for Norbert’s Gambit and here are 3 reasons why:
This is great because it allows you to keep your funds in the currency that it settles in without having to move it back and forth.
For instance, if on the same day you had sold US-funded ETFs for USD $600 and Canadian-funded stocks for CAD $350 then each of those transactions would settle and remain in their respective currencies.
There is a preference setting that allows all transactions to settle in either “US” or “Canadian” dollars, but unless you have a very specific reason for doing so, then the best option is to leave it on the 3rd category of “Currency of Transaction. That way you get the best of both worlds.
One of the great things about using Questrade is that it’s always free to buy ETFs. Simply put, there is no commission charged by Questrade for handling ETF purchase transactions.
*There is a very small charge called an Electronic Communication Network fee (or “ECN fee” for short) when you buy ETFs, however, its costs are negligible. Usually fractions of a penny per share.
You can read more about ECN fees here, why these fees exist and the reason it’s unnecessary to factor into your trading costs unless you’re buying upwards of several thousands of shares or more per transaction.
The minimum charge for selling an ETF is $4.95 and the maximum is $9.95 (plus the ECN fees which again will be about the same amount as before, except this time the fees will be in $USD).
For most people – especially those new to this – the fee for selling ETFs with Norbert’s Gambit will be closer to $5. Let’s explore why this is:
Questrade charges $0.01 per share when you sell an ETF, but starts at a minimum of $4.95 even if you only sell one or two shares (which btw, I wouldn’t recommend doing, as it is not very cost-effective). You would have to sell 496 shares or more before the commission to sell starts increasing by $0.01 for each additional share sold.
At the current date of this article, one share of DLR.TO ( the preferred ETF for executing Norbert’s Gambit) is valued at $12.37 CAD.
At this price, you would need to sell $6123.15CAD (or $5001.16USD, which is exactly 495 shares worth of DLR.U.TO after journalling) to start seeing the commission slightly rise.
Whether you trade 20 or 220 shares of DLR.TO you will still incur the minimum fee of $4.95 when you execute the sell order. It’s only when you pass this lower threshold of 495 shares that the fee will rise incrementally to a maximum of $9.95 or 995 shares. Once you pass this upper threshold, the maximum still remains at $9.95.
Step 2: Purchase Shares of DLR.TO in $CAD Dollars
Head over to the Questrade login page, enter your name and password and click on the big green “LOG IN” button to be taken to the “Balances” page to see your available cash flow for trading.
You’re going to be purchasing the Horizons US Dollar Currency Exchange Traded Fund (or ETF for short) with the ticker symbol of DLR.TO and place a market order. (To completely avoid those ECN fees I mentioned earlier, you can place a limit order below the asking price in multiples of 100. There are some risks involved when using this technique and I’ll cover more on this subtopic farther down.)
The reason why we use DLR.TO is because it is an interlisted (or cross-listed) stock. With an interlisted stock we can trade Canadian-bought shares for those listed on a US exchange at no extra cost. This trading is otherwise referred to as “journaling”.
Here’s Something I’ll Bet You Didn’t Know...
This ETF was created by Horizons in the spring of 2011 with a primary purpose of tracking the exchange rate between Canadian and American currencies. They may not have created "The Gambit" technique but they sure as heck capitalized on it!
By creating an ETF for investors that reflects the reference value in Canadian currency - respective of American greenbacks and stripped of financial expenses - Horizons was able to effectively manufacture a bridge between the TSX and NYSE thereby removing virtually all of the risk for those performing Norbert Schlenker's infamous market maneuver.
Once a buy order is filled the exchange rate is locked in from that moment. This eliminates any loss that might occur through daily market fluctuations in the currency, as you wait 3-4 business days for the transaction/journaling to clear.
This leads us to the next step…
Step 3: Journal Your Shares of DLR.TO to DLR.U.TO
Now you can initiate the process and convert your Canadian ETFs into American ETFs. You’ll need to contact Questrade’s customer service.
You can choose one of 3 ways:
Personally, I prefer option 3 – Live chat with an agent online.
I’ll briefly explain all 3 so that you can make the choice that you’re most comfortable with.
This one’s pretty straightforward – just call the number.
You can reach their customer service desk at 1 (888) 783-7866 and follow the prompts to be connected to a live rep agent.
Once you’re connected to an agent you’ll be asked to provide them with your credentials. This could include your name, account number and any other security questions to confirm your identity.
Then you’ll ask them to journal your shares using the following:
- Your account number
- The ticker symbol of the shares that you want journaled: In this case it’s DLR.TO
- Quantity of shares your journaling
- The ticker symbol that you want your shares journaled over to: In this case it’s DLR.U.TO
That’s all there is to it. They’ll confirm your order verbally and then you wait about 4 business days for the transaction to clear.
Pretty much the same as the phone call except you will type out your request in an email.
When journaling your DLR.TO shares with Questrade include these 4 important details from above, in your email
Before you hit “send” proofread your email for any typos, including the quantity of shares that you want journaled.
You can email them at the following addresses: firstname.lastname@example.org
I prefer this method over the other two for its convenience, simplicity and time management.
From the Questrade homepage, click on the trading drop-down menu at the top left of the page. Look for the 3 horizontal lines stacked on top of each other, like a hamburger menu icon.
From the drop-down menu click on “Accounts”. This will take you to your summary page where you can view your balances for each of your accounts. At the very bottom right corner of this summary page, you’ll see the “CHAT WITH US” tab.
Click on this tab and a pop-up chat window will open. Here you will have the option of entering your Questrade account number and pin.
Entering these details isn’t necessary but it will definitely speed up the process.
What's my Questrade Pin Number?
If you are new to Questrade, then chances are you haven't set up your personal Questrade pin number yet.
Let me walk you through it...
After you log in, on the upper right-hand corner of your screen click on your name beside the downwards arrow. Choose "Profile" from the drop-down menu and click to select.
At the very top, from within the “Personal” tab, you’ll see a textbox field to enter your new pin. Enter your new 4 digit pin and click the show button to visually confirm your choice.
When you’re ready click the green save button at the bottom of the screen. That’s it you’re all done. Now you can use your PIN to speed up the identity verification process during an online chat or a phone call.
Select “Trading on My Own” To Connect to a Live Questrade Rep.
Underneath where it says I want to chat about, you’ll see 5 options with radio buttons. Select the button to the left of Trading on my own to start the chat.
Now all you need to do is wait for the Questrade representative to connect.
You shouldn’t have to wait very long, usually less than 10 min. Occasionally you can get lucky and reach an agent in less than 60 seconds. However, if it’s a busy trading day or there’s high demand you may have to wait a tad longer.
Once you connect with an agent, you’ll want to let them know the details of your request. For example, you can type the following:
“I would like to journal 300 shares of DLR.TO over to DLR.U.TO from my RRSP account.”
Just be sure to replace the quantity of shares with your desired amount. They might ask for your 8 digit account number if you haven’t already supplied it. That’s all there is to it.
Easy peasy lemon squeezy.
Now that step 3 is done, we’re moving on…
Step 4: Wait 4 Business Days for the Journal to Clear
This step requires no action from you with the exception of a little patience.
It will take about 2 days for the purchase of DLR.TO clear. Following that, you will have to wait an additional 1 to 2 days for the ETF to journal over to DLR.U.TO.
In as little as 3 days you’ll be able to sell your converted US currency ETFs. However, at the most, you’ll be good to go in 4 days.
Step 5: Sell Your Shares of DLR.U.TO in $US Dollars
After 3 to 4 business days have passed, log back into your Questrade account.
Click on the hamburger menu icon on the upper left side and from the drop-down menu choose Trading.
From within the Trading screen, if you click on Positions, you will see listed all your currently owned stocks. You will notice that DLR.TO has been successfully journaled to DLR. U.TO in $US.
You will also notice that the quantity has remained the same but the market value and book value will have changed along with the price per ETF.
After you've confirmed your shares of DLR.TO have been journaled to DLR.U.TO, its time bring up the order entry pop -up window .
Since you’re most likely not looking to keep shares of this ETF (there’s no real value in doing so, compared to more lucrative investments), it’s time to sell your shares to get cash in $USD.
First, back in the Positions tab, let’s bring up the order entry pop-up window by clicking on DLR.U.TO. This will bring up your Position details pop-up window.
Next, click on the Buy/Sell green button on the left to bring up the order entry pop-up window. Finally, we can enter our order details. Fill in the quantity of shares that you want to sell and the order type.
Similar to purchasing, don’t forget to do the following:
Norbert's Gambit with Questrade - Sell Order Checklist
- Refresh the window in the upper right-hand corner to confirm the bid and the ask price.
- Choose Market for the order type so the transaction occurs immediately.
- Choose the quantity of shares you want to sell. Most likely this will be the same amount of shares you bought a few days earlier.
- Make sure you choose the right account. I will always suggest using your RRSP account to avoid possible tax consequences through capital gains.
After you’ve dotted all your i’s and crossed your t’s, you can click the red sell button.
A pop-up window will appear confirming your order. You’ll probably notice among some of the details that there is a small commission charge. Remember, even though there is no fee for buying ETFs there is one for selling.
This fee should be somewhere in and around USD $5 and change, but it could be a bit more depending on how much currency you’re converting. Be that as it may, $5 and change is still far less than paying the standard 2% conversion fee that most banks charge. Moreover, this especially true when you’re converting larger sums of money.
This fee will also include the ECM fees that I mentioned earlier as well. Near the beginning of the article, I explained what to expect in terms of commissions when selling ETFs using Norbert’s Gambit with Questrade.
Time to Complete the Transaction. Click "sell".
Hit the big red Sell button. You’ll see your confirmation in a pop-up window letting you know the order was filled. Look to the bottom right corner of the screen for this pop-up confirmation.
Next, you should return to your Balances tab and confirm the order by checking under the USD column. If your balance under this column was previously $0 you should now see a large sum of money from the proceeds.
Congratulations! You’ve successfully converted $CAD into $USD using Norbert’s Gambit with Questrade and it’s time for a celebration.
From here you can buy any US stocks or ETF from within your account or you can transfer these liquid funds over to a US bank account.