The Norbert Gambit is an excellent method for converting currency cheaply at discount brokers but some clients of TD Waterhouse have found gambitting with stocks in an investment account involves delays. A friend of mine purchased RIM on the TSX and hoped to sell RIMM on NASDAQ only to be told be TDW that he has to wait for the initial buy to settle (3 days) and a further 2 days before the journaled shares showed up in the US Dollar side of the account. My friend turned out to be lucky – RIM gained 10 percent during the wait but seeing how often RIM trades down these days, the story could have turned out differently. Now, thanks to the efforts of a Canadian Money Forum member who wishes to remain anonymous, all TD Waterhouse clients can implement instant gambits in their investment accounts. The member was also kind enough to put together the following post on how TD Waterhouse clients can make gambitting work for them.

TD Waterhouse representatives say they are ready now to execute the sell sides of instant stock gambitting pairs for all clients with every size of non-registered account [Note: Gambits can be done in TD Waterhouse RRSP accounts without the assistance of a representative].

Gambit trades are more complicated for a TDW licensed representative to handle than other kinds of trades. It’s helpful, therefore, for a client to understand the steps that are involved, not only from the client’s side of things but also from the broker’s.

Here are some hints:

  • TD Waterhouse clients should expect to pay the full agent-handled commission for the gambit sell side. [Note: Trades placed over the phone are charged a minimum commission of $43. If you’d rather wait for the trades to settle and pay WebBroker commissions, you can still gambit with DLR/DLR.U.]
  • Gambitting clients should prepare but not send the opening buy order, which will be an online order.
  • Next, contact a licensed representative by phone & make sure he or she understands what you want to do. Because more general representatives than before are now handling gambit trades, some representatives are fairly new at this practice, so a gambit client should be prepared to wait patiently if a rep needs to check with his team manager.
  • Client should send the buy order only when the agent confirms that he’s ready to do the sell order in the opposite currency.
  • As soon as the buy is filled, the agent will enter the sell order out of the opposite currency account. Initially, his system will block this order, just as investor’s online TDW trading platform will block it. However, the representative will be able to override this block and force the order.
  • At the same time, the representative will be sending a special manual journal request to the credit department alerting them that this trade, unusual though it may look, is nevertheless bona fide because the stock has indeed been purchased and is awaiting journal.
  • Notice that *NO* trades are ever placed through a short account. The gambit sell is executed upon a margin or cash account, not a short account. The result will be a virtual “short,” but it is not a real short in the technical sense of the industry. It does not get entered into the broker’s short records.
  • If there is sufficient margin in the margin account where the stock has been sold, investor may carry on to immediately purchase other securities. However, if gambit stock has been sold out of a cash account, the proceeds may not be used or withdrawn until the journalling of the stock has been accomplished, which will not be until 3-5 days later.
  • My own approach has always been to prepare everything & then contact a licensed representative. If i observe that trouble might develop for one reason or another, then i am always prepared to cheerfully abort the attempt. This is the reason for having the buy order ready but not sending it in until the agent is lined up. A gambit halted early like this is harmless, because no positions have been initiated. Investor should try later on the same day or else on the next day, with a different agent.

It’s important to keep in mind that, for the first time, TD Waterhouse is offering gambit sell trades to all customers on a goodwill basis. Retaining that goodwill is important. As easily and quickly as it has opened the sluice gates, the big green could close down all gambitting permanently, if it finds that staff are having to spend too much time dealing with individual clients.

This article has 17 comments

  1. Ok, confused. Some of this goes against the common knowledge about the gambit. Why would the commission be anything but the online rate ($10 or $30 depending on your account size)? I have been charged this in the past (as recently as a few weeks ago), and this seems to be the valid rate considering you can not perform this transaction online.

    Also, why is it said that ” for the first time, TD Waterhouse is offering gambit sell trades to all customers on a goodwill basis”? Has something changed recently because this has been possible for years.

  2. @W: TDW does implement instant gambits for *some* but not all clients. As I mentioned in the segue, a buddy of mine found it the hard way, buying RIM only to be told to wait for the stock to settle.

    Also, in my experience TDW does not always charge WebBroker commissions. In the past, I was charged WebBroker commissions but some investors were charged phone commissions. I’d be interested to know if TDW continues to charge WebBroker commissions for your future gambits.

  3. Hi CC–

    Norbert’s Gambit has been completely painless to perform at RBC-DI. No phone calls, no hassles, just the standard $9.95 trade times two trades plus the penny bid-ask spread per share. I have been with RBC-DI since late 2007– thus far, my customer experience with them has been very good. Note to TDW: the competition is killing you on the NG issue. Time to match the competition…

    BC_Doc

  4. Make certain you know for sure whether you will be charged the $10 online commission or (as CC indicates is likely) the much higher telephone commission. The later is US$35 + up to 8 cents per share (minimum US$43), and this can eat into most of the savings for smaller amounts.

    For instance, converting $5000 at TD’s 1.5% might get you US$5230. Doing it with 87 shares of POT might get you $5310, for an extra US$80 or so. But you have to pay the $43 phone commission, plus another C$10 for the web buy commission, so you are only ahead $25 for all the hassle (all numbers very approximate). Anything much smaller than $5000 probably isn’t worth it.

    I’m looking at the DLR/DLR.U that CC mentions. It appears that it may not perform much worse than other interlisted pairs, and you could simply buy it, wait for it to settle, and then sell it, if you aren’t in a hurry for the proceeds.

  5. very frequent gambitters would be best served with a bmo or a roybank account, at least as a backup account. Gambit trades at these brokers are instant, seamless & cost web commish on both sides.

    this still leaves a massive number of tdw clients – it’s by far the biggest brokerage in canada in terms of trade volume – who wish to gambit occasionally. They, too, have appealing choices.

    in tdw registered accounts, instant online gambitting does work. Scribble down details of the steps in your gambit trades as they progress. Ignore (or uncheck) the prompt that asks if you wish to convert transaction to the currency of your account. At the very end, when you wind up with US dollars, either wash them into US money market fund (phone the same day for this) or make sure you are already enrolled for automatic washing.

    in tdw non-registered, investor can take the slow, scenic, southern route using DLR & DLR.U while paying 2 web commish for the buy & the sell. This train will take 3-5 days.

    non-registered tdw investors in a hurry can take the hi-speed instant track, but they will need to phone a licensed representative to carry out the sell side at agent commish. See article. This train will zip you home in 5 minutes or less. But, as raven says, it’s hardly worth the hassle for amounts less than 10,000.

    btw, if taking the hi-speed train at tdw, choose an expensive stock like tdbank, so that you will have fewer shares upon which to pay the sell commission.

  6. “very frequent gambitters would be best served with a bmo or a roybank account, at least as a backup account.”

    Wouldn’t these folks be better off getting an IB account, paying the $2.50 currency exchange commission with no forex spread and forgetting about the gambit altogether?

    I don’t actually have such an account so the no forex spread info is based on others’ posts, open to corrections from those with first hand experience.

  7. If TDW finds the gambit such a big hassle, then why don’t they just offer sensible exchange fees and save themselves (and us) all the trouble?

  8. Right, so looking from outside the box, you are still doing a trade with risk involved. Also, once you buy the canadian stock, your money is being held STUCK on the canadian side as you cannot sell the stock unless you cover the short on the US side. The opportuninty cost of not using that money on the canadian side may be more costly than the commission you save.

  9. I meant the exchange fees.

  10. @BC_Doc: As I understand it, NG is also painless at BMO InvestorLine. Apparently, TD uses a different system than BMO and RBC, so it will not be able to do instant gambits anytime soon, unfortunately.

    @NorthernRaven: The phone commission changes the economics quite a bit. The break even point is around $4,200 assuming $43 phone commission, $10 web commission and $10 bid/ask costs and 1.5% currency conversion fees.

    @humble_pie: Thanks for your comments. Like you point out, approx. savings on $10K worth of conversion with the steps outlined here is about $75. I definitely wouldn’t bother if estimated savings are less than $20.

    @gsp: I think IB charges at least $10 per month. Assuming one opens an account just to convert currency, that’s an outlay of $120 per year. Anyway, this is a moot point for me. I’d like to keep all accounts in one place and since IB doesn’t offer RRSP accounts, it is a deal breaker for me.

    @bubak: Currency conversions are huge money makers and so many investors are blissfully unaware of how much it is costing them. So, I don’t see brokers moving to charge less anytime soon.

    m3kw: Maybe, I’m missing something but I don’t see much risk here because the buy and sell will be executed within seconds of each other. Of course, the money on the Canadian side is locked up but the money on the US side is available. Which was the whole point of this… Converting CAD into USD.

    • I would call a investment representative first at TD Waterhouse. Tell them what you want to do. Place the trade to buy in canadian stocks. Sell the stock on the US market and ask them to move the sell order to the american account. Usually, it doesn’t cost extra and they can send the shares over in a couple of days to balance the accounts.

  11. Hi. Can someone please confirm that they were able to do the gambit without checking the box asking for the forced currency exchange (happens at the sell transaction stage)?

    Also, since I don’t understand the logic behind the gambit at all, is it critical to keep the number of shares bought and sold the same or do I keep the CAD value of both transactions the same?

    Thanks.

    Pessimist

  12. @Pessimis

    You must keep it both the same. If you buy 1000shares RIM in TSE, you need to short 1000shares RIMM in NASDQ. Since the stock price of both TSE/NASD is exactly the same after exchange rate, when you short(sold) 1000shares on NASD, you get 1000share * Price in USD. So you just got that much US dollars without going thru the bank, the only thing is you cannot sell your TSE RIM shares UNTIL you buy back the shorted(sold) shares or else you put yourself at risk on the Shorted side.

    If you still don’t understand, then you don’t really need to use gambit, or shouldn’t!! Not worth your risk, just do a straight exchange and pay the fees.

    Regards,

  13. Norbert’s Gambit at TD cannot be completed now in non margin accounts without a call to TD and paying the trader assisted fee of $43 instead of $9.99.

    I haven’t tried but I’d assume with a short margin account you could buy and sell right away and then call in to have shares journalled over.

    Anyone else had this problem lately

    • I just did the gambit at TDW and to complete the sell order the rep was going to charge an exorbitant amount.

      Their telephone brokerage rate is $35 plus $0.06 per share which does not seem like a lot…. but if you want to convert $50,000 the trade can easily cost $100+.

      The cost of the second trade over the phone with the TDW rep is exorbitant.

      Be warned, if you want to convert larger amounts it also may not be as economical as expected.

      • Ben,

        I had called twice and both times was told $43. Tried to figure out a way around having to pay that fee but could not so I called back into TD to get the exchange done at $43 as I had to get the exchange done as it happened to be a larger amount and the lady only charged me $9.99. It all depends on who you get but don’t mention Norbert’s Gambit at all. It seems that the word is out that within TD and more and more traders within TD are aware of it and the TD policy of charging $43 on the backend of the trade. You still can do the frontend for $9.99.

        For now I would just keep calling back in until you get someone to do it for $9.99.

    • Ed,

      Thanks for your experience.

      The first time I called TDW, the rep said he could not make the sell as I did not have the shares on the US side — even though I had just bought them on the CAN side.

      He said if I wanted sell on the US side I first had to wait 3 days for the trade to settle then wait another 1 day to journal across.

      Sounds like it is the luck of which rep picks up the phone — what a pain.

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