If you have a Self-Directed RRSP account with TD Waterhouse (read my review), you will be able to sell a US-listed stock and park the proceeds in TD US Money Market (US$) Fund (TDB166). This process is called a “wash” trade and since moving our RRSP accounts to TD Waterhouse, I have executed a few of these personally. Washing your trade is quite simple: You put in a sell order for a stock and as soon as it is filled, you should call TD Waterhouse at 1-800-465-5463 and ask the agent to wash your trade. If multiple sell orders are filled in one day, wait for the last order to be filled before calling TD Waterhouse.
To use the proceeds of the wash trade to buy another US equity, simply put in a buy order and one day before the order is settled, call TD Waterhouse and ask them to sell enough of TDB166 and use the proceeds to settle the trade. For example, let’s say you put in a market order for VEA on Monday and it was filled immediately. You would call TD Waterhouse on Wednesday and ask them to use TDB166 to settle the trade.
TD Waterhouse also allows you to sell a US-listed stock and buy another US-listed stock on the same day without incurring foreign exchange transaction fees. The broker does this automatically by buying and selling US dollars at the same exchange rate and no action is required on your part. This was particularly useful when I recently substituted EFA with VEA.
I believe a few other discount brokers also offer the ability to buy and sell US-listed stocks on the same day without incurring fees (Can you let me know if your broker offers this feature?) but only TD Waterhouse allows you to wash your trades. Either method would allow you to save a total of 2% of the transaction value in foreign exchange fees. Depending on your transaction amount, the conversion fees may be much greater than the trading commissions.
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17 responses so far ↓
1 Investing Intelligently // Aug 8, 2007 at 4:36 am
Vanguard Europe Pacific ETF…
The Canadian Capitalist mentioned today how he substituted EFA for VEA, a new ETF from Vanguard. The Vanguard Europe Pacific ETF (VEA) is almost identical to iShares’ EFA, which follows the MSCI EAFE index. This is so cool, and its MER is 0.20% l…
2 Phil S // Aug 8, 2007 at 9:21 am
I have totally separate trading accounts for trading on the TSX (in CDN$) and trading on NYSE / NASDAQ (in US$) so wash trades have never been an issue with me.
3 Shawn // Aug 8, 2007 at 9:23 am
Thanks for this! I actually have a TD trading account (originally Ameritrade) and was thinking I will have to do this sometime soon. You still pay the trading commissions to buy/sell TDB166 right?
4 Canadian Capitalist // Aug 8, 2007 at 9:28 am
Phil: Wash trades make sense only for RRSPs. Taxable accounts usually have C$ and US$ accounts bundled into one account.
Shawn: If your account was moved from TD Ameritrade it would be a taxable account. So, the wash trade doesn’t apply there because you can choose to sell a US stock and keep the proceeds in US dollars. TDB166 is a mutual fund and there are no fees for buying or selling and no minimum holding periods.
5 Shawn // Aug 8, 2007 at 10:01 am
Sorry, I meant I became a TD customer due to the takeover. I have since opened a self-directed RSP account and hold a mixture of CDN/US stocks in it. Thanks for the info.
6 telly // Aug 8, 2007 at 12:35 pm
This might be a silly question but, do you know if you can deposit US$ into your RRSP (and thus buy US$ stocks / ETFs)?
I work in the US so would prefer to buy in US$’s in my RRSP, especially given the crappy (for me) exchange rate.
7 Phil S // Aug 8, 2007 at 1:51 pm
telly… if you live in the USA and earn greenbacks, shouldn’t you be contributing to an IRA or 401k instead of an RRSP?
8 Canadian Capitalist // Aug 8, 2007 at 2:12 pm
telly: You won’t be able to deposit US$ into your RRSP but you can buy a US-listed security in your taxable account and after it is settled, contribute in-kind to your RRSP.
9 telly // Aug 8, 2007 at 3:14 pm
Phil,
I work in the US but live in Canada (commute every day). I do have both a 401k and RRSPs.
CC,
Thanks for the info…that sounds like a rather interesting idea that I never considered before.
10 Baby Theme and More! | Million Dollar Journey // Aug 10, 2007 at 3:32 am
[...] Canadian Capitalist explains how to avoid USD exchange fees with TD by Washing Your Trade. [...]
11 TD Waterhouse’s Lowers Commissions // Aug 29, 2007 at 10:34 am
[...] all your brokerage accounts. In addition to the new lower commissions, TD Waterhouse also offers wash trades and the opportunity to invest in the e-Series index [...]
12 Henry // Oct 9, 2007 at 4:07 pm
Will you be able to buy stocks before you sell your USD Money Market Fund, if you don’t have any extra cash in the account?
13 Doug // Nov 20, 2007 at 12:02 am
Any experience directing USD distributions directly into TDB116 ? Presumably you would have to keep track of the exact dates of any such distributions and call each time. I wonder if you could simply leave instructions as to what you wanted done with USD distributions?
14 Questrade Offers US Dollar RRSPs // Jan 10, 2008 at 10:47 am
[...] all for a small extra fee of $5. Questrade’s latest move is a vast improvement over the wash trade capability offered by TD [...]
15 Wash Trades Save You Money // Apr 16, 2008 at 3:25 pm
[...] in your RRSP account, it’s possible that you could save more money by choosing to wash your trades than paying a lower [...]
16 E*Trade Quietly Offers Limited Wash Trades // May 21, 2008 at 4:32 pm
[...] your post about Questrade allowing customers to hold US Dollar in their RRSPs, and I applaud TD Waterhouse’s automatic “wash trade” capability. I was under the impression that E*Trade didn’t allow wash trades, but when I switched to TD, [...]
17 Limited Wash Trades at Credential Direct // Jun 3, 2008 at 5:05 pm
[...] thanks to Charles for the note Credential Direct (read review here) is now washing rates when U.S. Dollar denominated securities are bought and sold in RRSP accounts on the same day. [...]
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