Norbert's Gambit Questrade

Are you Canadian? Want to invest in US listed securities, but just can’t get over the hefty conversion fees?

Well, then I have good news for you. There is a method that lets you cheaply exchange CAD and USD with a discount brokerage account.

This method is called Norbert’s Gambit. Instead of paying a conversion rate upwards of 2-3% (depending on which discount brokerage you use), you pay as little as $5-10 for a conversion. To get these low fees, the discount brokerage I recommend you to go with is Questrade.

Ready to save big on conversion fees and keep more of your well-deserved money? Read on for the most comprehensive step-by-step guide on how to execute Norbert’s Gambit with Questrade.

Resources
Norbert’s Gambit Calculator (Google Sheets), or (Excel .xlsx)

What Exactly is Norbert’s Gambit?

Don’t be fooled by thinking there is significant risk involved just because it’s called a “gambit”. If you understand the process, it’s actually very simple and a low-risk method to convert your dollars.

Norbert’s Gambit is a method many Canadian investors use to exchange between CAD and USD. Essentially, it involves buying, journaling, and then selling shares of a security on the Toronto Stock Exchange that is transacted in both USD and CAD currencies.

There is an ETF used specifically for Norbert’s Gambit. It is called the Horizons US Dollar Currency ETF, and it eliminates a lot of holding risk because its price strictly tracks the US dollar currency. As a result, this ETF acts as a proxy for the CAD/USD exchange rate. It is denominated in Canadian dollars under the ticker symbol DLR.TO, and denominated in US dollars under DLR.U.TO (both are traded on the TSX).

Since this ETF tracks the US dollar, the ratio between the price of DLR.TO and DLR.U.TO will always match the USD to CAD exchange rate during trading hours. The key here is that you can journal DLR.TO shares to become the same number of DLR.U.TO shares (and vice versa)!

When Should I Use Norbert’s Gambit?

The primary use of Norbert’s Gambit is to buy US listed securities as a Canadian without paying large conversion fees due to the currency spread of banks and discount brokerages.

Think of this simple example. Imagine you wanted to buy $10,000 CAD worth of AMZN. You’d first have to convert your CAD to USD. If you get your discount brokerage to do the conversion, given a 2% conversion fee, you’d be paying around $200 just in fees! That hurts me just thinking about it.

Here are a list of factors to let you decide whether this conversion strategy is right for your situation.

When To Do Norbert’s Gambit

  • If you understand how commission and ECN fees are applied (everything you need to know about fees is explained below), then by waiting a bit of time, you can convert any large amount of CAD or USD at a flat conversion fee of $9.95!
  • The more CAD or USD you are converting at a time, the greater you benefit from this technique. In fact, if you are converting tens or even hundreds of thousands of dollars, you can save thousands in conversion fees!
  • When you are converting CAD to USD by buying DLR.TO, you are essentially locking in your CAD to USD rate the second your order is filled, meaning you are virtually eliminating currency risk since your holdings are in a US cash equivalent. Even though you still have to wait several days to sell DLR.U.TO, you can easily predict the price of DLR.U.TO when it comes time to sell.
  • If you have an RRSP account, you will be able to avoid US withholding taxes when you invest in US listed ETFs (which require USD to buy).

When Not To Do Norbert’s Gambit

  • If you’re exchanging under $500 worth in CAD or USD, it’s not really worth the time spent to save a few dollars.
  • For Questrade you will have to wait 3-4 business days (usually about a week) from the time you spend CAD to the moment you are able to receive your USD. If you can’t wait that long, I would recommend against it.
  • When you are converting the other direction, USD to CAD, you are exposed to currency risk since you are not locking in the conversion rate until you sell DLR.TO at the very end. This is because when you buy DLR.U.TO with USD, you are still holding USD, and the price of DLR.TO can change within the few days you have to wait. If you are concerned that the Canadian dollar will drop several percent over the next week, I would recommend waiting for a better time to convert, or just using the traditional method.
  • If you have a TFSA or non-registered account and the only US securities you want to invest in are US listed ETFs, it may be more cost-effective to invest in their non-hedged ETF counterparts on the TSX.

Now that you understand the basics of Norbert’s Gambit, we can dive into the step-by-step instructions to cheaply exchange CAD and USD.

CAD to USD Conversion

Step 0: Open a Questrade account

Before you can exchange CAD and USD for the purposes of buying securities, you’ll need to have a discount brokerage account.

Questrade has been my go-to discount brokerage of choice since I started investing, and I have a self-directed TFSA account with them. They offer the lowest commission fees around, and have a user-friendly trading interface. They also allow you to hold CAD and USD balances in the same account.

Don’t have a Questrade account?
As a proud partner of Questrade, Wealthsavvy readers can earn $50 in free trades by using our link to open a self-directed account.

Step 1: Determine How Much CAD to Convert

Depending on your own circumstances, decide on one of the following:

  • Convert a predetermined amount of CAD (e.g. I want to convert $5000 CAD into USD)
  • Receive a predetermined amount of USD (e.g. I want to receive $5000 USD from my CAD)

For the latter case, use the following formula to determine the amount of CAD you need.

CAD to convert = USD converted * USD to CAD conversion rate

As an example, I will be referencing the time I performed Norbert’s Gambit in September 2018. I wanted to convert Canadian dollars to ~$3000 USD. The USD to CAD rate on September 9, 2018 was 1.303. Following the formula above, I therefore needed $3000 USD x 1.303 = $3909 CAD.

Step 2: Calculate the # of DLR.TO Shares to Buy

Next, we want to determine how many DLR.TO shares we can buy. Use the following formula.

# of Shares of DLR.TO to buy = CAD to convert / Price of DLR.TO

To look up the price of DLR.TO on Questrade’s trading page, type in “DLR.TO” in the Symbol lookup search bar.

Continuing with my example, at the time I purchased DLR, it was trading at $13.03. This means I would aim to buy 3900 / 13.03 = 299.31 shares of DLR.TO. I rounded up to 300 shares for a clean number (and to avoid ECN fees which I discuss in the next step).

Step 3: Calculate Commission and ECN Fees

Many people want to know in advance exactly (down to the penny!) how much they would be paying in fees to convert CAD to USD. However, there are several nuanced details to know if you want to precisely calculate your fees.

If you don’t want to calculate the fees yourself, I’ve created an easy-to-use Norbert’s Gambit calculator with Google Sheets.

Simply change the dark green input values as required. You can play around with it to see how much in fees you’ll be paying in different scenarios. If you need an offline version, click here to download the Excel spreadsheet (you’ll need to manually input some values).

Norbert's Gambit Calculator Questrade Fees Spreadsheet

Before moving forward, you should understand how commission and ECN fees are applied on Questrade. Here’s a run-down on how the fees work.

Commission Fees

The great thing with Questrade is that when buying ETFs such as DLR.TO, it does not cost you any commission fees. Questrade only charges commissions when you sell ETFs (in our case, this would be when we sell DLR.U.TO in Step 7). In particular, Questrade charges a fee of 1 cent/share (min $4.95, max $9.95) to sell ETFs.

ECN Fees

There is another potential fee to be aware of (separate from the commission fee), which are called ECN fees. These are smaller than commission fees, and are only $0.0035 per share. Note that ECN fees can apply on both buying and selling ETFs, but are avoidable if you really want to only pay the commission fee.

When are ECN fees applied? ECN fees are mainly charged when you are removing liquidity from the market. In other words, they are usually charged when you place a market order, a limit order at the ask price when purchasing shares, or a limit order at the buy price when selling shares. A simple rule of thumb to determine if you’re being charged ECN fees is this: if you place an order and it is filled immediately, you are most likely paying ECN fees on that order.

You may also ask if the fees are in CAD or USD. Both types of fees (commission and ECN) are calculated in the currency of the trade. So if you incur ECN fees while buying DLR.TO, it is in CAD. But if you incur commission and ECN fees while selling DLR.U.TO, it is in US dollars!

One more thing to note about ECN fees: they are also charged if you don’t purchase/sell DLR in multiples of 100 shares, even if you are adding liquidity. This can be best explained through an example. The first time I tried Norbert’s Gambit, I bought 360 shares of DLR.TO. Even though I placed a buy limit order below the ask price to avoid ECN fees, I still ended up paying ECN fees on 60 of the 360 shares that I bought. This came out to an insignificant $0.21 ECN fee, so in the end, not a big deal. In fact, the most you could pay is 99 * $0.0035 = $0.3465 cents, which is quite tiny. But, it is good to know when you are verifying your trades how everything adds up. Better to know the ins and outs of the process than to be left surprised!

Don’t fuss over too much about ECN fees; they only matter a bit more if you are converting large amounts of CAD and USD. The takeaway point to know about them is this: you pay an additional $0.0035 per share if you want to immediately buy or sell DLR shares.

Calculating Your Total Fees

Norbert's Gambit Conversion Fees Graph

The graph above helps you roughly determine how much you’ll be paying in fees, depending on how many shares of DLR.TO you buy and whether you are adding or removing liquidity. View this graph in the spreadsheet to pinpoint the cost of your specific Norbert’s Gambit.

Let’s continue with my example in Steps 1 and 2 to illustrate how to calculate your fees. First, calculate the fees that would be incurred for buying DLR.TO. I decided I wanted to avoid ECN fees when buying my shares. So I set a buy limit order below the ask price (at the bid price). Here I paid $0 in both commission and ECN fees since I am adding liquidity and Questrade doesn’t charge commission when buying ETFs.

Second, calculate the fees that would be incurred for selling DLR.U.TO (you convert DLR.TO to DLR.U.TO after you journal the shares, which is explained below). This time I decided to incur ECN fees since I wanted to sell as soon as I could. So I placed a sell limit order for 300 shares at the bid price to immediately receive my ~$3000 USD. I ended up paying $4.95 USD in commission, plus an additional 300 x $0.0035 = $1.05 USD in ECN fees. All in all, I paid a total fee of $4.95 + $1.05 = $6 USD.

This comes out to a 0.2% conversion fee, which is 10x lower than the ~2% conversion fee when directly exchanging currencies!

Step 4: Buy DLR.TO During Trading Hours

Now comes the process of actually buying shares of DLR.TO on the Questrade trading platform.

You must decide whether you want to incur or avoid ECN fees. Essentially, you are choosing between waiting and paying less or not waiting and paying a bit more. It all depends on your own situation.

Personally, I usually just take the ECN fees since every $5000 converted corresponds to a measly ~$3.50 ECN fee, or a 0.07% additional conversion fee. However, if you are buying thousands of shares, avoiding ECN fees can help you save a lot.

Choose ONE of the following options below, depending on your own preferences.

Option 1: Buy Immediately (Incur ECN Fees)

If you want your buy order to be filled immediately and don’t mind the ECN fees, just set a limit order to buy DLR.TO at the ask price (I would recommend this over placing a market order just to be safe).

Go to the trading panel on Questrade, locate the Order entry box to the right, and follow the instructions on the infographic below.

How To Buy DLR.TO Shares Questrade Infographic

Option 2: Avoid ECN Fees (Wait Longer To Buy)

To avoid ECN fees, you must be willing to wait longer for your buy order to be filled. You also take the risk of your order never being filled at all if the market price never reaches your limit price. In particular, place a limit order to buy DLR.TO at or below the bid price. It may take anywhere from a couple minutes to a couple days for the trade to be executed due to the relatively low trading volume of DLR.

Go to the trading panel on Questrade, locate the Order entry box to the right, and follow the instructions on the infographic below.

How To Buy DLR.TO Shares Questrade No ECN Fees Infographic

Step 5: Journal Your DLR.TO Shares to DLR.U.TO Shares

Now that you have bought DLR.TO shares, you can call, email, or live chat with a Questrade representative to journal over the shares.

I prefer to use the live chat feature since I can save the conversation in case problems arise during the process.

Journal DLR Shares Infographic

Step 6: Verify Currency Settlement Settings

Note: This step only pertains to registered accounts (TFSA or RRSP). If you are doing Norbert’s Gambit with a margin account, you do not need to apply this step.

In the Account Management tab, ensure that the currency settlement setting is set to “currency of transaction”. This should be the default setting, but it is very important that this is correct. Otherwise, when you sell DLR.U.TO shares you may receive CAD instead of USD and Norbert’s Gambit won’t work.

To find this setting, click your name on the top-right and click on “Settings” to access the Dashboard.

On the Dashboard, locate “Account Management” at the top of the page. Hovering this text will let you select “Account Management” again in the drop-down menu.

Account Management Settings

At the bottom of the Summary section, verify that the currency settlement is set to the currency of transaction.

Step 7: Wait 3-4 Business Days to Sell DLR.U.TO and Receive USD

Now you will need to wait 2 business days for the trade to settle, and an additional 1-2 days for Questrade to journal the shares. This is a total wait of 3-4 business days for DLR.U.TO shares to appear on your account.

As mentioned earlier, note that with a CAD to USD conversion, waiting a few business days does not impose currency risk. The conversion rate you pay is locked in the second your buy order is filled. This is because the moment you own DLR.TO shares, you are basically holding a US cash equivalent. As a result, you can use the historical graph of DLR.U.TO to predict your selling price within $0.01.

DLR.U.TO price history chart

However, the same does not apply with a USD to CAD conversion. When you convert USD to CAD, the conversion rate you pay is locked in at the very end, when you sell DLR.TO. Therefore currency risk is a factor to take into consideration when you are converting USD to CAD using Norbert’s Gambit.

When the journal is completed, you will see your DLR.U.TO shares appear in your Positions tab on the trading page. Click on the shares and click on the Buy/Sell button, or type in “DLR.U.TO” in the “Order entry” field on the right of the trading page.

At this point, the selling process is very similar to the buying process. Once again, decide whether you want to incur ECN fees or avoid them, noting that there are commission fees when selling ETFs. The main difference is that if you want to avoid ECN fees (but wait longer), you need to sell at the ask price or higher to add liquidity, whereas to sell immediately (and incur ECN fees because you’re removing liquidity), you sell at the bid price.

Step 8: Verify That USD Received Matches Your Calculations

You have successfully completed the conversion at this stage, congratulations! To make sure that your fees match what you expected, click on Reports > Account Activity from the Dashboard to view your transaction history.

Account Activity Report

You should see something like this.

Account Activity

Note that if you do not sell in multiples of 100 shares, then your sell order may occasionally be split up into two parts in the account activity. This won’t affect your conversion fees (i.e. you won’t get charged commission twice). Simply add the two commission fees together to arrive at your expected total.

USD to CAD Conversion

The process from converting USD to CAD is extremely similar to the process outlined above for a CAD to USD conversion.

The main difference is that you incur currency risk from waiting the 3-4 business days for the journal to complete. As explained above, the conversion rate you pay is locked in at the very end, when you sell DLR.TO. During this waiting period, the strength of CAD relative to USD may rise or fall.

Since the process is very similar to the CAD to USD conversion explained above, I will touch over the steps required more concisely.

Step 1: Determine How Much USD to Convert

Depending on your own circumstances, decide on one of the following:

  • Convert a predetermined amount of USD (e.g. I want to convert $5000 USD into CAD)
  • Receive a predetermined amount of CAD (e.g. I want to receive $5000 CAD from my USD)

For the latter case, use the following formula to determine the amount of USD you need.

USD to convert = CAD converted * CAD to USD conversion rate

Step 2: Calculate the # of DLR.U.TO Shares to Buy

Next, we want to determine how many DLR.U.TO shares we can buy. Use the following formula.

# of Shares of DLR.U.TO to buy = USD to convert / Price of DLR.U.TO

To look up the price of DLR.U.TO on Questrade’s trading page, type in “DLR.U.TO” in the Symbol lookup search bar.

Step 3: Calculate Commission and ECN Fees

The process of calculating your fees is explained in detail in Step 3 of the CAD to USD section.

To determine the fees that you’ll be paying, use the “USD to CAD” sheet in the Norbert’s Gambit excel spreadsheet or online Google Sheets.

Step 4: Buy DLR.U.TO During Trading Hours

Now comes the process of actually buying shares of DLR.U.TO on the Questrade trading platform.

You must decide whether you want to incur or avoid ECN fees. Essentially, you are choosing between waiting and paying less or not waiting and paying a bit more. It all depends on your own situation.

If you want your buy order to be filled immediately and don’t mind the ECN fees, just set a limit order to buy DLR.U.TO at the ask price (I would recommend this over placing a market order just to be safe).

To avoid ECN fees, you must be willing to wait longer for your buy order to be filled. In particular, place a limit order to buy DLR.U.TO at the bid price. It may take anywhere from a couple minutes to a couple days for the trade to be executed due to the relatively low trading volume of DLR.

Navigate to the Questrade trading page and locate the “Order entry” box to the right. Search for “DLR.U.TO”, input the required information, and then click “Buy” and “Send Order”.

Step 5: Journal Your DLR.U.TO Shares to DLR.TO Shares

Now that you have bought DLR.U.TO shares, you can call, email, or live chat with a Questrade representative to journal over the shares.

I prefer to use the live chat feature since I can save the conversation in case problems arise during the process.

View the infographic above for step-by-step instructions using the live chat option.

Step 6: Verify Currency Settlement Settings

Note: This step only pertains to registered accounts (TFSA or RRSP). If you are doing Norbert’s Gambit with a margin account, you do not need to apply this step.

In the Account Management tab, ensure that the currency settlement setting is set to “currency of transaction”. This should be the default setting, but it is very important that this is correct.

To find this setting, click your name on the top-right and click on “Settings” to access the Dashboard.

On the Dashboard, locate “Account Management” at the top of the page. Hovering this text will let you select “Account Management” again in the drop-down menu.

Account Management

At the bottom of the Summary section, verify that the currency settlement is set to the currency of transaction.

Step 7: Wait 3-4 Business Days to Sell DLR.TO and Receive CAD

Now you will need to wait 2 business days for the trade to settle, and an additional 1-2 days for Questrade to journal the shares. This is a total wait of 3-4 business days for DLR.TO shares to appear on your account.

When the journal is completed, you will see your DLR.TO shares appear in your Positions tab on the trading page. Click on the shares and click on the Buy/Sell button, or type in “DLR.TO” in the “Order entry” field on the right of the trading page.

At this point, the selling process is very similar to the buying process. Once again, decide whether you want to incur ECN fees or avoid them, noting that there are commission fees when selling ETFs. The main difference is that if you want to avoid ECN fees (but wait longer), you need to sell at the ask price or higher to add liquidity, whereas to sell immediately (and incur ECN fees because you’re removing liquidity), you sell at the bid price.

As explained above, the effective conversion rate is decided at the this step when you sell DLR.TO.

Step 8: Verify That CAD Received Matches Your Calculations

You have successfully completed the conversion at this stage, congratulations! To make sure that your fees matches what you expected, click on Reports > Account Activity from the Dashboard to view your transaction history.

Account Activity

Enjoy saving on conversion fees and buying securities across the border!

Norbert’s Gambit with Questrade: Step-By-Step Guide (2019)

3 thoughts on “Norbert’s Gambit with Questrade: Step-By-Step Guide (2019)

  • April 16, 2019 at 6:27 pm
    Permalink

    Does this work with a margin account as well or only registered accounts? because the currency settlement setting is only available for registered accounts

    Reply
    • April 17, 2019 at 12:58 am
      Permalink

      Hey David,

      Great question. Norbert’s Gambit does in fact work for Questrade margin (non-registered) accounts. This is because with margin accounts, trades are always settled in the currency of the transaction, so you can simply skip this step of the process if you’re using a margin account.

      Reply
  • February 14, 2019 at 7:22 am
    Permalink

    Good evening. Thanks for this info! Useful article.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *