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.

Update (January 16, 2012): You can now set up automatic wash trading in registered accounts by calling TD Waterhouse.

This article has 25 comments

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  2. 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. 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

    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. 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. 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. 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

    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. Phil,
    I work in the US but live in Canada (commute every day). I do have both a 401k and RRSPs.

    Thanks for the info…that sounds like a rather interesting idea that I never considered before.

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  12. 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. 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?

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  18. Good news for BMO account holders!

    I asked BMO about wash trades and US cash in RRSP accounts, and got this reply today:

    “There is a long term plan to allow US$ cash in RRSP accounts. Unfortunately I can not provide a time frame as to when this will be offered. We do allow FX washes for stock trades in RRSP accounts. To arrange this please contact a BMO Investorline Representative during trading hours. A BMO InvestorLine Representative is available at 1-888-776-6886. The best time to call us would be right after both orders have been filled.”

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  20. Pingback: Automatic Wash Trading at TD Waterhouse | Canadian Capitalist

  21. Pingback: Automatic Wash Trading at TD Waterhouse « MoneySense

  22. Too bad there isn’t a way to do all of this online, as opposed to having to call the broker.

  23. You can now phone TD Waterhouse and set up a auto wash !

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