Norbert’s Gambit

Converting currencies can feel like throwing away money when banks and brokers take a large cut of the exchange. However, there is a way to cut the amount you spend on currency exchange down to the range of $10-20, even for 5 figure transactions. The technique is called Norbert’s Gambit and it is a currency conversion method that allows for an inexpensive conversion of CAD to USD and vice versa without incurring fees, typically 1 to 3%, charged by banks and brokers. 

When you use this technique, it costs two trading commissions and the bid-ask spread.  For instance, if you convert 10,000 Canadian dollars into USD using a brokerage conversion fee of 2.3%, you would pay $230, but if you use Norbert’s Gambit, you can save over 90% of that amount.

Norbert’s Gambit is executed by purchasing interlisted stocks or dual-currency exchange-traded funds (ETFs). To perform this technique, you need to have an account with a discount brokerage; it can be a non-registered or registered account.

The process of Norbert’s Gambit involves 4 relatively simple steps (6 if you include opening a discount brokerage account and depositing your Canadian dollars):

– buying interlisted stocks or ETFs with your Canadian dollars

– journaling the Canadian shares to your US dollar equivalent of the interlisted stock or ETF

– waiting for the trade to settle (typically 2 business days)

– selling the same number of shares on the NYSE and settling in American dollars

One popular option for executing Norbert’s Gambit is to use the DLR.TO stock, which is the Horizons US Dollar Currency ETF that reflects the price of the US dollar and net expenses of investing in US cash and its equivalents. The main benefit of using DLR.TO is that it generally does not lose or gain in market value as much as other stocks, which makes it more predictable. However, it is essential to journal the units over ASAP after your purchase because the price can change, and you could end up spending more than the $10-20.

Using DLR.TO as an example, you would purchase a certain number of shares depending on how much Canadian dollars you would like to exchange.  To figure this out just divide the amount of CAD you have, ie $10,000, by the share price.  The result is the # of shares to buy.

Then you will immediately call your brokerage and tell them to journal all of your shares over to DLR.U. 

At that point the waiting game is played, for 2 business days until you can sell your shares. 

Once you have sold all of your shares of DLR.U you will have the USD equivalent of $10,000 Canadian dollars, minus the overall cost of the transaction.

Regarding execution of the above steps, don’t wait longer than you need to, to avoid paying more for the transaction than you need to.  As mentioned before, it is essential to journal the units over ASAP after your purchase because the price can change.  For the same reason, it is equally important to sell the DLR.U shares ASAP after the trade (journalling over the shares) has settled.

In conclusion, Norbert’s Gambit is a powerful tool for investors to save money on currency exchange fees. By following the relatively simple steps outlined in this article, investors can drastically reduce their costs. While there are some risks involved in executing Norbert’s Gambit, such as changes in share prices during the waiting period, these can be minimized with careful planning and execution.  And investors are far more likely to spend less on currency conversion by using this method than by paying currency conversion fees.  So if you’re tired of paying high fees for currency exchange, consider trying out Norbert’s Gambit for your next investment.