Typically, the biggest cost involved in buying stocks or ETFs listed in the US markets is the foreign exchange fees. Discount brokers typically charge 1.5% or more for converting Canadian dollars into US dollars or vice-versa. If you want to convert $10,000 Canadian into US Dollars, it will cost you at least $150 at your discount brokerage. It is not charged as a separate fee but is hidden in the exchange rate at which the conversion is done.

A Canadian Money Forum member shared a neat trick for converting loonies into greenbacks and vice-versa for little more than the cost of two stock trading commissions, the buy-ask spread and a tiny amount of market risk. The idea behind the trick is to buy a highly-liquid stock that is listed in the Toronto Stock Exchange and sell the same stock in the US markets (or vice-versa if you want to convert US dollars into Canadian dollars). I’ll illustrate how to execute this trick at TD Waterhouse (read my review here) with TD Bank’s stock as an example but it should also be possible at other discount brokers and other inter-listed stocks such as Research in Motion (TSX: RIM, NASDAQ: RIMM), BCE or Potash Corporation (POT). Note that you may not want to try this strategy with a stock you already own unless you want to trigger capital gains or losses.

TD Bank trades on both the TSX and NYSE under the ticker symbol TD. To convert $10,000, first buy TD on the TSX at the current ask in your Canadian dollar account. If TD is trading at an ask of $74.58, you’ll buy 134 shares for a total cost of C$10,003.72 (assuming a $10 commission). Then you’ll call your broker and ask to “journal” TD Bank stock over to the US dollar account and sell it there at the current bid price. If TD is trading at a bid of $73.75 on the NYSE, selling 134 shares will gross $9,882.50 (USD). Since the transaction was done through a broker, TD Waterhouse will charge $39 plus 8 cents per share for a total commission of $49.72 (US), leaving you with a net of $9,832.78 (US).

You can also use the same method to convert US dollars into Canadian dollars by buying an inter-listed stock in the US markets and selling it on the TSX. The effective cost for converting to Canadian dollars to US dollars using this method works out to 63 basis points. But since the fee is more or less flat, you can save substantial amounts in conversion charges for larger sums of money. It should be pointed out that this method involves taking on the risk that the market moves sharply against you between the time you bought the stock on one exchange and phoned in the order to sell the stock in another exchange. Of course, the stock could move higher, which results in a lower conversion cost or perhaps, even leave you with a profit.


This strategy is popularly referred to as “Norbert’s Gambit” and is detailed on the Financial Webring Forum website.

Intelligent Speculator reports that this strategy is possible at National Bank Direct Brokerage (NBDB).

See the comments section below for how Charles in Vancouver saved on foreign exchange using “Norbert’s Gambit” at Credential Direct.

As I wrote in this post, the Horizons BetaPro US Dollar Currency ETF (DLR, DLR.U) offers a foolproof way to implement the Norbert Gambit.

This article has 60 comments

  1. Would this work in an RRSP account?

  2. Ideally if you had a margin account, you would just buy on and one side and then short immediately after on the other side, and then get the broker to use the purchased shares to cover the short. I don’t know if the trading platforms will let you do this though.

    Also important to note that you shouldn’t do this with a stock you already own since that will realize some capital gains or losses.

    • Canadian Capitalist

      @Pedro: I would think that this method is possible in a RRSP account as well. Though, most brokers won’t allow you to hold US dollars. At TD Waterhouse, you may have to do an additional step of washing your sell order into the TD US Money Market Fund. Of course, most brokers don’t allow wash trading, so this point is moot with them.

      @Jason: Excellent point about capital gains and losses and I should mention this in the post. I’ll update. I’ll have to check with TDW about margin accounts.

  3. Charles in Vancouver

    @Jason: Better to short first, then buy. Some online trading systems get mad if you try and buy a stock and then short the same one (e.g. “shorting against the box”). I’ve done this (“Norbert’s Gambit” as it is referred to on Financial Webring Forum) once and it worked well but I haven’t needed since. *Also* if you’ve never shorted before, shorting first will make sure that it works on your account!

    Here was my Gambit on June 19, 2008:
    I sold short 100 shares of ECA on NYSE, market order, using Credential Direct. At first I had to phone because the back end forgot to configure my margin account to have a “sell short” button.

    I placed the order online at 10:10 AM PT, and at 10:30 it’s still not filled. Still waiting… phoning CD to check.

    The guy on the phone confirmed the sale had gone through at 92.28 US but it wasn’t on my screen yet. So I immediately went for a market buy in CDN on TSX and it was filled instantly at 93.77. During the wait, ECA jumped up a bit so I’m sure I lost a little.

    End result: Sold short for $9228.95 – $19 commission = US$9208.95
    Bought for $9377.00 + $19 commission = CDN$9396.00
    Exchange rate without commissions = 1.0160
    Including commissions: 1.02031
    XE nominal exchange rate: 1.01325 @ 10:35 AM PT

    Effective vig including commissions: 0.7%. Credential would have charged me 1.5%. I have saved $75 on this gambit.

  4. Hi, you should have compared to bank exchange rates (how most people would do this) Here’s how my math works out:

    Your $10,003.72 Canadian, would have bought you $9,516.48 at CIBC on March 16th (1.0512/USD)

    That’s a difference of $316.30 to your after commission proceeds of $9,832.78

    Your effective exchange rate was 1.0174/USD a savings of about 3.3 cents/dollar.

  5. Will the broker agree to journal a stock that has not settled (T plus 3)? Or at least wait overnight, until the system has updated the day’s activities, i.e. Client Holdings?

  6. Jason/ Charles,

    I too have done what you propose successfully: shorted an interlisted stock on an American exchange and gone long in Canada on the TD Waterhouse platform to convert C$ to US$. The short/ long buys can be executed in seconds of each other, thereby much decreasing the risk of price movement in the stock. The phone call to journal over the long position to cover the short can then be made at your lesiure- stress free.

    If any of the brokerages are listening: until exchange rate spreads are reasonable (ie <0.5%), this tactic is likely to continue to grow in popularity.

  7. @Mark: Yes, I checked with TDW that the broker will agree to journal and sell the stock even if it is not settled yet. I don’t have a margin account but I’m going to take Charles’ suggestion and short first when I try this out. That way, the market risk will become really small and you don’t have to wait on the phone to get a representative and take the chance that the market moves against you.

  8. Maybe I am missing something here, but what if the stock drops between the time you buy it on the Toronto Exchange and sell it on a US exchange? You could possibly lose more than the amount of the currency exchange fee that is built into the price of the US dollar you buy from the broker, no?

  9. Even if you don’t own the stock already you would still have to record the small gain/loss on your taxes, no? A bit of admin overhead hopefully offset by the savings.

  10. Brilliant, I love it, had not thought about such an option before but it makes perfect sense. I did contact my broker and they have no problem doing the journal entry.

    @Sean – Sure, but if done quickly and at a calm time of the day, you would expect the result to be about 0$.. and the gain or loss would be small so commission is the main thing to consider I’d say.

    @Michael – Yes, but in any case if you have a non-RRSP brokerage account, you will probably be reporting taxable income or capital gains… so this will simply change that number very slightly, not more work on your part.

  11. If i’m understanding your strategy, you’re basically saying to day-trade your way to saving on conversions?

  12. I think it’s even worse than that – if you make a gain you have to report it. If you make a loss then you can’t claim it (superficial loss rule).

  13. How do you know when the market is ‘calm’ and even if it is, it could suddenly change, right?

  14. It could, but if you are doing the two trades 1 second apart, the risk it very limited I think it’s fair to say:)

  15. So you can sell them on the US exchange before you actually have them journaled over? And, if so, I take it they have to be journaled over the same day in order to cover the US sale?

  16. As in most things in the investment world, one should weight the risk against the gains.

    I recently bought $60k of USD in my RRSP account. I think the forex rate was actually about 2.5% worse than market rate, so I could had save about $1500 if I had known this technique.

  17. Yes, you could do the journal at any point. The only thing that will keep you from waiting more is to not pay “borrow fees” on your short position… but calling later in the day, or even the next day is fine. I would without any doubt do the two trades before doing the journal.

  18. Canadian Capitalist

    @Sean: Yes, there is a risk that the stock may move sharply. However, the risk can be mitigated by buying on a slow news day and by entering the two orders within a minute or so of each other. Since, a typical foreign exchange conversion will cost 1.5 to 2.0 percent, a stock has to make a significant downward movement for this strategy to result in worse results.

    @Intelligent Speculator: May I ask who your broker is? I’ll note your findings in the post if you like.

    @The Rat: This is not “my” strategy. I found it on CMF and turns out it is well-known as Norbert’s Gambit. I disagree that this is akin to day trading because we are not speculating. We want to exchange dollars for the lowest possible charges and this strategy provides us very good odds of doing so.

    @Ray: Yes, but the gains / losses should be minimal or zero because we are entering the two transactions as close to each other as possible on a highly liquid stock.

  19. No problem CC, my broker is National Bank Discount Brokerage (CDBN)

  20. Charles in Vancouver

    Indeed, highly liquid is important. Also picking a stock with higher-priced shares is helpful because the bid/ask spreads introduced by a few cents will be smaller. In my case I picked ECA because its price at the time was just perfect that I could do an even lot of 100 shares and convert the amount I intended to. (My how times change; ECA is down to less than 1/3 of its price from when I did the Gambit!)

    With Credential, I called to journal and they said I could only do it on settlement day, 3 business days later. I waited, called back on that day, and it all worked out. I did also have to ask them to manually move the shorting proceeds from my margin-short US account to my margin-long US. Fortunately I was not in a hurry to spend the proceeds. If I were, I suppose I could have bought on margin, and then on journal day everything would even out.

  21. As far as I’m aware, shorting is not possible in an RRSP account. Thus you are stuck “shorting against the box”.
    I don’t know what the repercussion is for this since I haven’t done it before… does anyone have any experience with it??

  22. speaking as the original canadian money forum member who “shared the neat trick” the other day, and after looking over the comments here to date, yes, intelligent speculator has definitely gotten it. So have andy and charles. So have others.

    those who feel anxious over a two-legged transaction in which the client has to stick-handle both trades with quick precision probably should not try this. There are no taxation consequences to fret about, although there may be a few dollars gain to report, while losses cannot be claimed unless the stock one is selling has been held longer than the wash rule provisions.

    i didn’t obtain this strategy from anybody’s gambit. It was a natural outcome of having sold countless US options on canadian underlying stocks over a number of years, thus raising countless US dollars without any currency exchange fee. I became adept at trading diagonally opposed positions, often in different accounts.

    since there is nothing new under the sun, there are undoubtedly countless others who’ve practiced this same currency conversion strategy for years, but they have just never come forward. And undoubtedly there were many others who benefited long before norbert’s time.

    what we’re all doing, essentially, is riding briefly on the arbitrageurs’ coattails, because the arbs not only have access to wholesale money-centre exchange rates but also their actions, in assembling complex blocks including long & short positions, futures & options, help somewhat to determine those very same money-centre spot rates. We retail investors have no prayer of ever coming near such rates.

    as i’ve posted on CMF and am posting here, BMO investorline and other systems using the same mainframe data platform can accept both the buy stock and the sell stock orders, online, and within seconds of each other. The TD waterhouse platform, meanwhile, can only do this online if the client shorts the desired currency stock first, then buys to cover his short a second or two later.

    alternately, as CC has described, tdw will assist a phone-in client to conduct the strategy on the sell side, possibly charging the web commish or possibly charging the full phone-in commish as his discretion dictates. In this scenario, the client is handicapped by the wait time for the licensed representative to take the phoned-in order.

    there are some caveats to observe to help ensure successful outcomes for this currency conversion strategy:

    1) try the strategy on quiet days. No news, no buildup to earnings announcements, no dividend x-dates, no market pandemonium.

    2) choose a highly liquid stock, so as to be playing with the tightest bid/asks possible (td bank is not liquid enough in the US. At present, potash and rim/rimm are good candidates. If you’re shorting first, go at it on a day when price is trending down. Duh.)

    3) the bigger the amount to be exchanged the better. Strategy probably not worth attempting if less than $5000 is involved.

    4) if you will need to phone your sell order, choose an expensive stock like potash so that if the representative decides to apply the full phone-in commish, the cents-per-share charge will be as low as possible. It might help, also, to discuss what you’re planning to do with a representative ahead of time and get him to post an acceptance note on your file, since some representatives can be balky about this strategy and the trader who hits a balky representative will unfortunately experience an additional time delay.

  23. Canadian Capitalist

    @humble_pie: Thanks for sharing this strategy on CMF and allowing me to publish it here. I have to say that this is a pretty neat trick and the savings should be substantial for converting large amounts of cash. I’ll update that it’s possible to do the buy and sell online at BMO InvestorLine. Thanks again.

  24. humble_pie: I am confused about why you can’t buy the stock on a Canadian exchange and then short the same stock on a US exchange (if you have a margin account) on the TD platform before you’ve called to journal the stock over. Certainly the TD platform allows you to buy online on a Canadian (or US exchange). So, what prevents you from then shorting it on a US exchange online before having it journaled over if you have a margin account? Does the TD platform not accept short orders online? But that can’t be true because you say you can short first online.

    Can you explain please?

  25. Wouldn’t a far more simple solution be to have both a USD and CAD investment account and transfer money between them? This seems to work for me with BMO InvestorLine, with the one caveat being that the online transfers I believe take up to a full business day.

  26. @ humble_pie – You maybe did not invent it, but just bringing to our attention is very appreciated (as was your post CC!).

    @Simplicity – this strategy is exactly done to avoid “transferring” between a CAD and USD account. Just look at the rates and do the match… if you transfer 10,000$USD into your CAD account and back, you will end up paying more than 2% in “fees”. These are only reflected in the spreads that they take, so they do not have to tell you that there are fees (technically there aren’t).

  27. to Intelligent
    as you say we have CC to thank for this, as well as for so many other items.

    to Sean

    if you look back thru the messages above, or those accumulated on the linked websites, you’ll see some that mention the investor cannot “short against the box,” that is, the rules prevent him from shorting stock he already holds long.

    so in this currency strategy the trader shorts first, then covers his short by buying long, thus keeping everything veddy marquis-of-queensbury.

    online commish are generally the same for long & short trades. And yes, of course, tdw offers online shorting.

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  29. @sean

    Why can’t you ‘short the box’ on TD Waterhouse (ie sell a stock short that you hold a long position in)?

    The reason for this is that ‘shorting the box’ is considered a tax avoidance strategy by Revenue Canada. The scenario goes like this: Imagine I have a large holding in a company that has seen a good deal of capital gains. I want out because I suspect the stock is going to fall in value, however, selling will trigger large capital gains which I want to avoid this year. Thus, I short-sell the stock in another account, effectively unloading my position without appearing to have sold the stock and triggering capital gains. This short-long situation will need to be resolved eventually- but you are effectively delaying on tax oweing.

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  31. Interactive Broker offers forex trading with spreads of a few cents (active market) for exchanges of $25000 and more. A very professional platform for all CD and US investing.
    Also for anyone doing covered call writing IB will assign shares at no commission

    Piedmont, Quebec

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  33. Do you recommend the Norbert’s Gambit method for conversion of $100K CAD to USD with TDW? Is it riskier for larger amount? What stocks are good candidates? Do you need to know the broker well before they will journal for you? Is there a chance they will say no?

  34. Further to my previous post, for NG, do I need to use the TDW Cdn margin account to buy in TSX and use the TDW US margin short account to sell the same stock in NYSE? or I can just use the regular investment/cash accounts. Do I require to deposit money in both Cdn and US accounts before I can trade? Can someone give a little more detail about the steps as I never use the margin account before.

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  41. Can anyone confirm that these transactions can be completed by a client of RBC Direct Investing? They do offer dual currency option in all investment accounts. Online trading charge is $10/trade. I believe a trade over the phone will cost $30. I will find out if my account is setup for margin trading. Anything else I should ask? Thanks.

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  44. John Q Public

    >I think it’s even worse than that – if you make a gain you have to report it. If you make a loss then you can’t claim it (superficial loss rule).
    No, not true. The superficial loss rule would not apply because you don’t hold the position anymore. It only applies to securities REPURCHASED within a set period. Once you exit a position (and presumably don’t rebuy…hence just buy something with high liquidity you’re not interested in), any resultant capital losses are yours to declare. BTW, just in case there’s confusion, even when the superficial loss rule is triggered, your capital loss is NOT LOST. It’s simply deferred until you exit that position and stay out of it for greater than 30 days.

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  50. Has anyone used this strategy with Questrade? I talked to the customer support rep and I was told that they don’t charge any fee or other cost than their normal $4.95 min. They said that this transaction doesn’t go to the trade desk. Can someone share their experiences with Questrade in that matter?

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  53. Hey guys, there is really no need to go through all this hassle, when there are private fx brokers, like myself, that will give a 0.5-0.75% rate, and free wire transfers on USD/CAD conversions. Anything over 10K will easily qualify, and rates are negotiable. Check out our website, Knightsbridgefx.com.

  54. I used http://www.knightsbridgefx.com to buy US dollars, it was simple, better than the bank rates and other providers rates and quick, some of the other stuff above with stock changes was too confusing for me and i didnt want to screw anything up.

  55. I’m a newbie. “Shorting the stock, then buy” – can you explain that in laymen’s terms? Appreciate it.

    Love the blog.

  56. Fantastic tip… Thanks guys

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