GK sent me an e-mail noting that E*Trade has joined TD Waterhouse and Qtrade in offering some form of “wash trade” capability when buying and selling US dollar stocks in a RRSP. A slightly edited version of GK’s note is posted below with permission:

I followed 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, E*Trade contacted me and asked me to come back.

I told them I left because E*Trade doesn’t do wash trades. I was told that yes, they do wash *rates*, but it requires a phone call after the trades are made, and the trades have to occur on the same day.

Since then, I have sold and bought US stocks, and have had success in getting them to wash the trades. Customer service has been kind of spotty, though, so I’ve had to be persistent. The occasional service representative says “We don’t do wash trades”. Eventually, I find someone who knows what they are doing.

I’ve since learned that this is a service they offer to people with over $25k invested with E*Trade. Also, there is no way of investing any left over USD in a money market fund, similar to TD Waterhouse.

I’ve done wash trades on three separate occasions now, and washing the rates has worked every time but I’m always a little worried that I’m going to have a problem with it. TD’s automated washing gives more peace of mind.

I look forward to a day when we are allowed to settle an RSP sale in US Dollars at any broker but I’m sure they will not be in a rush to offer this like Questrade has. It’s just too much of a cash cow: they make more during the double conversion than through commissions.

Thanks GK for your note. E*Trade’s website makes no mention of the “wash” capability but when I called E*Trade, the agent I spoke to confirmed that when US dollar denominated stocks are bought and sold in a RRSP on the same day and the client gives a call to request a wash, they are able to do it. The agent was a bit vague on a definite criteria saying that it’s offered for “certain clients”. Still, it is encouraging that E*Trade offers some form of wash trading capability, especially since their currency conversion charges are among the highest compared to other discount brokers.

This article has 9 comments

  1. This sounds like a very quiet “limited offer” kind of deal.

    Not something I would rely on.

  2. Wash trading can also refer to a situation in which a trader uses a discretionary or institutional account to trade with his own personal account or a related account. For example, a discretionary managed account broker trading securities from a client’s account to fill his own personal orders. This form of wash trading is illegal.

  3. Canadian Capitalist

    Mike: I’ll call E*Trade and ask if it is a limited time offer. I don’t think it is. The other two that offer wash trades – TD Waterhouse & Qtrade – keep it quiet as well.

    Robillard: No, we aren’t talking about anything illegal here 🙂

  4. CC – I didn’t “time” – just that the offer was limited.

    It seems to me that both Questrade and TD made a bit of a splash with their wash trades functionality. Maybe it was just in blogworld?

  5. Canadian Capitalist

    Mike: Oh. Okay. I misunderstood your comment. TD Waterhouse has offered wash trading for years but it’s kept it kind of quiet. I think GK might be right that wash trading at E*Trade is offered to anyone with $25K in assets. For existing clients, it wouldn’t hurt to call them and ask and painlessly save a bundle.

  6. Hi everyone, I’m GK. Wash rates/trades are asset limited at E*Trade. I was told by one customer service rep there was a requirement (I think it was $25,000 in assets at E*Trade, but I could be wrong on that).

    Also, I wouldn’t switch to E*Trade just for this, but like CC said in one of his comments, if you’re already there, why not call and ask? I was talking to a registered trader at E*Trade, and he asked me to call the following morning to arrange the wash. He then did a quick calculation, and said, “You’ll save $700 for that one phone call.” We laughed and agreed it was worth it. I made the call.

    All things considered, were I to switch from another broker that didn’t offer wash rates/trading, I would go with TD. They don’t require that phone call to arrange the wash, as long as the trades are made on the same day.

    Again, hopefully all brokers will eventually allow us to settle trades in USD, and wash rates/trading will be a thing of the past.

  7. Just for reference, the way a Questrade RSP account works for U.S.$ trades is the U.S. dollars sit as a “position” and overnight the trade either adds or subtracts from this “position”. No calling or specifying source. At least that’s how it works for me.

  8. I looked into the legal aspect of holding US$ in your RRSP and found that holding foreign currancy in your RRSP is considered a qualified investment under cdn tax rules, and thus legal. At one point in time the IDA by-laws penalized brokers for holding US cash in RRSP accounts but this was never enforced and struck from the by-laws in 2006 by all proviences. However the borkers and banks have not complied with the law and actually lie to customers saying that customer’s can’t hold US$ in there RRSPs under the law [totally false statement]. In fact the law is the opposite, but as one writer stated, it is a cash cow by forceing customers to convert to Cdn$ after closing out a position and charging 4 to 10 basis points on the value of the trade. The only way to enforce the law would be a class action suite.

  9. Canadian Capitalist

    Robert: Darn right that it is a cash cow. A 1% foreign exchange commission each way on a $10K trade works out to $200, far more than even the most expensive discount broker commission.

    Fortunately, there are some options however imperfect they may be. I moved from RBC Direct to TD Waterhouse just for this reason and if more investors vote with their feet and demand a change, the brokers will fall in line before you can say “currency conversion charge”.