How to use Norbert’s Gambit to Reduce Canadian Foreign Exchange Fees

Norbet’s Gambit is a currency conversion strategy that can actually save you money. Unlike other currency conversion methods, it does not require a bank. Let’s take a look at how it works. 

What is Norbert’s Gambit?

In simple terms, Norbert’s Gambit is a way to convert currency from CAD to USD or the other way around. It comes at a much lower cost than using the bank. It does this by using ETFs. Since some ETFs are in USD and others are in CAD, you can purchase in one currency and then sell the ETF in the other currency. By using this strategy, you avoid any fees charged by banks as well as foreign exchange fees. You only have to be concerned about the standard commission fees. 

Is Norbert’s Gambit Legal in Canada?

In short, yes. Norbert’s Gambit is legal in Canada. Most Canadian brokerages will allow this strategy since many ETFs are listed on both the Toronto Stock Exchange and the NASDAQ. Plus, this strategy can be used with a variety of different accounts, including:

• Non-registered accounts (non-registered margin accounts)
• TFSA accounts
• RRSP accounts

However, like with any investment strategy, there’s always a risk. Whenever you buy and sell, you always need to consider a loss. That said, a strategy like this isn’t recommended for amounts that are $1,000 or less. It’s more recommended for higher amounts. 

How to do Norbert’s Gambit?

While the idea of Norbert’s Gambit can seem complicated, it’s actually simpler than you may think. Here’s an example of how to do Norbert’s Gambit, along with the saved fee vs the typical way to exchange funds. 

Norbert’s Gambit

When it comes to Norbert’s Gambit, there will always be currency exchange fees. That said, you can save on a lot of other fees by using this method. Most companies have shares on both the US and CAD exchanges, so brokers usually realize what you’re doing. They actually have a specific name for it, which is journaling. 

To start, you need to choose a platform that supports journaling. Not all do, and some require contact to complete the process. However, many can just perform the process, and that’s the ideal platform to choose. 

To complete the process, you also need an investment account that offers both Canadian and US holdings. You will likely need a US bank account, so finding the right financial institution is key. 

For this example, let’s say we are turning US currency into CAD. What you want to do is purchase the US version of the investment on the Toronto Stock Exchange, also known as the TSX. As soon as it’s completed, you can initiate the sale in CAD for the stock you purchased in USD. It will then be sold in the same version of the shares but in CAD currency. 

Once this is done, you may have to wait one or two business days to access your money. Once you have access, you can cash out and use the CAD currency fund. You can also do the same if you’re converting CAD into USD, just in reverse. 

The cost for a conversion such as this is normally just a trade cost of $10 to $15 since you don’t have to worry about any conversion fees. If we’re doing this for $2,000 and have a conversion fee of 1%, then your fee is going to be $20, along with any other fees the bank will charge. So you can already see that there are savings. 

Foreign Exchange Fees in Canada when Investing

Foreign exchange fees in Canada vary depending on the brokerage you use and the currency that you’re converting to. Keep in mind, this only comes into effect if you purchase an investment in a different currency. 

When you open a brokerage account, you’re going to have a base currency. If you use this base currency, then you aren’t going to be charged any currency conversion fees. However, for example, if you purchase a US dollar currency ETF in CAD currency, then you will be charged. This is because the brokerage has to convert the currency. 

How much you’re charged for currency conversion is based on how much the currency costs and how much money you’re converting. For many brokerages, the lower the amount that you’re converting, the more expensive the fees are going to be. The more you exchange, the lower the fees will be. Norbert’s Gambit is an effective way to avoid these fees. 

The Fee for Converting CAD to USD in Questrade

One of the most popular brokerage platforms right now is Questrade. Like other brokerages, they charge brokerage fees when they have to make the currency conversion. Their standard fee to convert CAD to USD is 1.5%. It is included in the total foreign exchange rate and is seen when you make the conversion. Because this fee is shown upfront, there are no hidden fees. 

Full List of Platform Fees

When it comes to currency conversion fees, each platform has its own rates. Let’s take a look at each. 

RBC Direct Investing

With RBC, they base their foreign currency rates on how much you’re converting. These are their standard rates. 

• $0 to $24,999 - 1.6%
• $25,000 to $99,999 - 1.0%
• $100,000 to $499,999 - 0.6%
• $500,000 to $999,999 - 0.4%
• $1,000,000 to $1,999,999 - 0.2%
• $2,000,000.01 and up - 0.1%

BMO Investorline

BMO Investorline is another brokerage that bases its conversion fees on how much is being converted. The amounts are different from RBCs. 

• $0 to $25,000 - 1.6%
• $25,000 to $74,999.99 - 0.9%
• $75,000 to $99,999.99 - 0.8%
• $100,000 to $249,999.99 - 0.5%
• $250,000 and above - 0.04%

TD Direct Investing

Unlike other direct investing brokerages, TD’s foreign currency conversion fees aren’t listed. You have to be registered for TD Direct Investing in order to see the rates. However, they are based on amounts just like the other brokerages. 

Questrade

Unlike other brokerages, Questrade doesn’t base its foreign exchange fees on the amount that is being converted. With Questrade, the currency conversion fee is a flat rate of 1.5% for all transactions.  

Wealthsimple

Even though Wealthsimple doesn’t allow for Norbert’s Gambit transactions, they do have foreign currency conversion fees if you choose to go that route. These are their current rates:

• $0 to $10,000 - 1.5%
• $10,000 to $24,999.99 - 1.00%
• $25,000 - $99,999.99 - 0.50%
• $100,000 and over - 0.00%

Other Fees You Pay When Trading

Whether you have to pay for the foreign exchange service of currency conversion or not, there are other fees that you need to pay for Canadian stocks, even with discount brokerages. Some of these fees include ECN fees, brokerage fees, and commission fees. 

When choosing your discount brokers you choose to use, you’ll want to look for one that has commission-free ETF trading. This will help with your adjusted cost basis and allow you to save money, even if you do have to pay FX fees when performing stock trades on different stock exchanges.  

Norbert’s Gambit with Different Investing Platforms

The process of a Norbert’s Gambit transaction depends on the platform you choose to use. Each platform has a different process, which will determine the steps you take and how long it will take you to receive your converted funds. 

RBC

If you trade with RBC Direct Investing, you’ll notice the Norbert’s Gambit process is pretty straightforward. Many investors say it’s the best platform for Norbert’s Gambit transactions. Here’s a look at the process. 

With RBC, you’re just going to purchase the version of the ETF in Canadian dollars on the Toronto Stock Exchange. If there’s a US version on the TSX, then you’ll sell it there, or you can sell it as the US version on the New York Stock Exchange or the NASDAQ. 

Once you sell it, you’ll receive the funds in USD, which you can then deposit in a USD account. However, when using RBC direct investing, you’re looking at waiting up to 2 business days to receive the USD funds. That said, it’s only the standard exchange rate that you have to worry about, and there are no hidden fees. RBC is excellent about not charging any fees or having any roadblocks when using Norbert’s Gambit. 

BMO

If you want to do online investing with BMO, then you have the option of using BMO Investorline. However, unlike RBC Direct Investing, BMO Investorline doesn’t allow you to complete a Norbert’s Gambit transaction without contacting them first. 

First, you want to purchase whichever security you select that trades on both markets. You use the funds you want to confirm to US funds when making the purchase. Once that is done, you have to use the MYLink system to contact BMO Investorline directly. You have to request that the shares purchased in Canadian funds be journaled to the US equivalent. You have to wait for this to be done before you can sell the funds in USD. 

Just like with the Royal Bank of Canada, you have to wait for the settlement period before the currency is in your account. Because you have to wait for settlement and journaling times, the volatility of the market could affect the conversion of funds. Plus, you still need to pay any commissions and trading fees that BMO charges.  

TD 

Another popular investing platform in Canada is TD Direct Investing. While TD offers Norbert’s Gambit, you must work with the platform directly. 

How it works with the TD direct investing steps is that you start by choosing the security you’re purchasing. Just like the other platforms, you have to make sure this security is available on both the TSX and NASDAQ. Some will be available on only one platform. Once you’ve picked this, you need to complete the purchase in your base currency. 

Once you’ve made the purchase, the shares need to be journaled in order to sell them in alternate currency. You do this by contacting TD Direct Investing over the phone or online. Once you’ve contacted them, it can take anywhere from 2 to 4 business days to complete this. Then, you can sell them and have the funds transferred into the correct account. 

When dealing with TD, you need to consider any standard trade fees that you may have to complete. You also have to keep in mind that there is a risk of losing money with the journaling delay. You also need to keep in mind that you have to contact TD to complete the journaling process, and it can’t be done automatically like other platforms. 

Questrade

Being one of the most commonly used trading platforms for new and experienced investors, Questrade also has the ability to allow for Norbert’s Gambit. Just like with any platform, you need to figure out which security you’re going to purchase and calculate how much you need to purchase. 

Once you’ve done that, you can log into your Questrade account and complete the purchase. Then you’ll have to get them journaled. You can do this by submitting a request through the online portal. You can do this by following the steps below.

1. Find the management page
2. Click on journal shares
3. Fill in the online journaling request
4. Submit the request

Once this is done, you need to wait 3 to 5 business days for the funds to be journaled. Only then can you sell the shares. Once the trade is settled, which can take another 1 to 2 business days, then you’ll receive the converted funds. 

Wealthsimple 

While Wealthsimple is a great investment brokerage, they unfortunately do not accommodate the journaling process between CAD and USD, which is Norbert's Gambit. This means that in order to change the currency of funds, you will have to pay the 1.5% conversion fee. 

How Norbert’s Gambit Got Its Name

The name Norbert’s Gambit comes from the person who originally came up with the strategy. His name is Norbert Schlenker. While he didn’t make his idea public until 2001, he had been using the method to convert his funds before then. Only once he figured it out did the strategy become very popular. 

Norbert Schlenker was actually from British Columbia, Canada. He worked for an investment management company called Libra Investment Management and used the strategy often. By using this method, he was able to save himself and investors a lot of money, and even more once he made the strategy public. 

Common ETFs Used for Norbert’s Gambit

While there are a few different ETFs you can use to avoid currency conversion fees from USD to CAD or CAD to USD, most investors use the Global X U.S. Dollar Currency ETF. This ETF used to be known as the Horizons U.S. Dollar Currency ETF. Since these, in both currencies, are technically the same ETF, their ticker symbols are similar. The US dollar one is DLR.U.TO and the Canadian dollar one is DLR.TO. 

Canadian investors use this particular ETF (exchange-traded fund) with their discount brokerage account because it's listed on one exchange and with the same company. You can purchase and sell DLR on the TXS, making it a little simpler to perform Norbert’s Gambit than interlisted stocks. 

Risks Associated with Norbert’s Gambit

As we briefly mentioned, when converting USD to Canadian currency with Norbert’s Gambit, or the other way around, there’s always a risk. While it can save you money with financial institutions and improve your personal finance situation, you can also lose money in the process of exchanging money in different currencies.

After you spend your money from your margin account on your shares and use your limit price, it can take a few days for the journaling process to be completed. During that time, there is a currency risk due to fluctuating stock prices. By the time that you’re ready to sell, you could end up with less money in your USD account since the USD cash price can change as well as the stock price. 

Even though this is a risk that you take with Norbert’s Gambit, many people still choose to use this currency conversion strategy. Most of the time, it can save you a lot of money and help you grow your investments. 

Final Thoughts

In Canada, both investing and converting CAD and US currency can be expensive. When choosing to use Norbert’s Gambit, you need to consider the fees versus the trading fees. In some cases, Norbert’s Gambit can save you a lot of money. However, there are cases where it could end up costing you more. It isn’t the right solution for every transaction. 

In the cases where Norbert’s Gambit is the right choice, most investors agree that RBC is the easiest platform to use for this strategy. You don’t have to contact anyone to initiate the journaling process, and you can complete the transaction in the fastest amount of time. However, many platforms will allow you to use this strategy.