What is Norbert’s Gambit? It’s a great way for you to convert your CAD to USD, or vice-versa.
The basic idea is to find a security that is listed in both US dollars and Canadian dollars. You then buy the security in one currency, transfer it over to the same security that is priced in the other currency, and then sell it.
Even though the basic steps for Norbert’s Gambit are the same at every bank, there are some confusing things that pop up when you try this for the first time.
Today, we’re going to go through how the process works with TD Direct Investing by showing an example of converting $1,000 CAD to USD using the Horizon US Dollar ETF (symbol: DLR).
Using Norbert’s Gambit With TD Direct Investing
1. Get a quote for stock symbol “DLR” and calculate how many shares you need to buy in order to convert the amount of money you’d like.
In our test, we’re converting $1,000 CAD to USD. Since we cannot buy fractional shares, we needed to do some rounding. Based on the price we got, it turns out we need to buy 76 shares of DLR.
2. Place a buy order on DLR for the number of shares you calculated.
We ended up buying 76 shares of DLR for a price of $1,003.96 + $9.99 (trading fee). This will now show up in your CAD TD Direct Investing account.
3. Transfer your DLR shares into DLR.U (this is the US dollar equivalent of DLR).
This is where the magic happens. You transfer your DLR shares in CAD into DLR.U shares in USD. Note that you may have to wait a day or two after your buy your DLR shares in order for the security to become eligible for transfer.
The formal name for this process is called “journaling”, and you can do it yourself through the online tools.
Click on Accounts –> Securities Transfers to get the process started. You will then have to search for the security that you want to transfer. Type in “DLR” and select it.
Your screen should now look something like the image below.
Once you click “Continue”, you’ll be taken to the screen shown below. You’ll have to select which account you want to transfer the security to. Make sure you pick an USD investing account for the “To” account. In our test, we transferred from our CAD TFSA to a USD TFSA.
Once you click “Confirm Transfer”, your DLR shares will be moved to the designated account that you selected.
You now hold DLR.U shares which are priced in US dollars.
Also, note that it’ll sometimes still show the price in CAD (along with the flag) even though it’s in your USD investment account. This is nothing to worry about.
4. Place a sell order on all of your DLR.U shares.
So here is where things get a little confusing. In your USD trading account, the DLR shares might not display as DLR.U shares. However, you are able to sell the DLR as DLR.U in your USD trading account.
To make sure you’re trading correctly, don’t click on the sell button listed beside the name of your shares.
Instead, click on the “Buy/Sell” button on the top menu bar to start a fresh trade.
Then type in “DLR.U” in the symbol field to make sure you’re selling it as the USD version of the security. Now enter the full quantity of shares to sell, and choose “Limit Price” as the price type. We just made the limit price value the same as the bid price so that it would sell right away.
Your trading screen should look something like the below.
This trade will be executed in US dollars, and you’ll get screen confirming what you’re selling along with any associated fees.
Congratulations you have now converted your money into USD!
In our example we paid $9.99 CAD and $9.99 USD in fees. Since we only converted $1,000 we didn’t save much money compared with doing a straight-up currency conversion.
However, you need to remember that your cost for converting ANY amount of money will still be $9.99 CAD and $9.99 USD. If you’re converting larger amounts, say $10,000, then you will be saving over $100 easily by using Norbert’s Gambit as most banks charge around a 2% fee for currency conversion.
Things to Remember When Using Norbert’s Gambit on TD Direct Investing
1. Norbert’s Gambit takes time. The entire process took about 5 business days from start to finish. If you’re in a rush, then Norbert’s Gambit is probably not for you.
2. The more money you’re converting the more you’re saving by using Norbert’s Gambit. All of the banks charge foreign exchange (FX) fees on a percentage basis. Since the cost for executing Norbert’s Gambit is not percentage based, it’s better to convert a large amount versus a small amount. We would suggest using the gambit only when you’re converting $2,000 or more.
3. The price of DLR/DLR.U will change in line with the CAD-USD exchange rate. Remember that that price of DLR/DLR.U does fluctuate with the CAD-USD exchange rate. This means that while you’re waiting for your trades to settle you are exposed to any changes in the CAD-USD exchange rate for about 5 days. In our case, the price of DLR/DLR.U actually went up after we bought it so it worked in our favor.