A little while back, I wrote about a neat little hack I learned on Canadian Money Forum on saving money on converting Canadian dollars to US dollars or vice-versa. The hack allows you to convert Canadian dollars into US dollars by buying a highly liquid inter-listed security on the TSX, journaling it over to the US account and selling it on an US exchange. Or you could convert US dollars into Canadian dollars by buying an inter-listed stock on an US exchange, journaling it over to the Canadian account and selling it on the TSX. I recently had a chance to implement the hack in real life. Here’s my report:
I purchased 150 shares of Research in Motion (RIM) on the TSX at $67.10 (plus commission of $9.99) for a total of $10,074.99. I called TD Waterhouse and requested to journal the shares over the US account and immediately sold 150 shares of Research in Motion (RIMM) on NASDAQ at US$64.92 (minus commission of $9.99) for a total of US$9,727.86.
At that exact same time, my broker quoted an exchange rate of US$0.9560 for the currency conversion. At that rate, exchanging $10,065 would have netted US$9,622.14. The total savings net of two trading commissions of $9.99, bid-ask spreads and market risk (RIM moved slightly lower when I was on the phone): US$105.72.
A word of caution: don’t forget to double check that the trades were recorded correctly. I found that the first trade was cancelled and RIM purchased on NASDAQ — not exactly what I had instructed. It took another phone call later to correct the trades. Also, I could have reduced market risk by calling the broker first before purchasing RIM instead of first making an online trade and scrambling through the broker’s automated phone line. Still, despite the minor glitches, the conversion process went through rather smoothly and depending on how often or how much currency conversions you make, the savings could be substantial.