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If you have a CA$ account and a US$ account (both no fee) is it possible to make money on the foreign exchange conversion? I'm thinking I could buy US$ (transfer from my CA$ account to my US$ account) when the CA$ is strong and sell when the US$ strengthens. What am I missing here?
 

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You won't be able to exchange money without paying the spread (the difference between the buy price and the sell price). In other words, the currencies will have to swing by more than the spread (could be 2 or 3 %) before you even break even.

All in all, currency trading is a bit of a mugs game. If you want to give it a shot, thinking about setting up a forex account at a discount broker.
 

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I know if you go into an RBC it is 2.4%.
This was over a year ago when I wanted to do something similar.

I never found a good solution and gave up.
I wish I didn't...we were down to .70!!!
 

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there is a way to exchange currencies without paying a currency exchange fee, which typically runs to 1.90% or higher each way.

suppose you want to raise $50,000 USD. You have the equivalent funds in your canadian online account. You choose a highly liquid interlisted security like potash or rim, something that trades millions of shares per day in both countries. If the wholesale currency exchange rate would be, for example, 1.05, you buy roughly $52,500 worth of POT in canadian dollars on the tsx. Within seconds, you sell the same shares for approximately $50,000 on new york.

voilà, a painless inventory of USD with no exchange fees whatsoever. The only costs will be the 2 commissions, probably less than $20 and surely not more than $60 or $70. Plus one might miss a few dollars if the share price is falling during the seconds it took to send the sell order. On the other hand if the share price is rising during those same seconds, this will work in one's favour. In addition there will be an amount so tiny as to be invisible to the eye, ie measurable only in 4th & 5th decimal places, due to the effect of arbitrageurs working both markets.

in the foregoing example, costs of exchanging 50K were limited to approximately $20 and change, or possibly $70 and change. On the other hand, the one-way exchange fee at a bank-owned broker would run at least $950.

here on this forum, one other poster has mentioned that he utilizes this strategy. He's pointed out that it's not worthwhile for amounts less than 10K, although i myself tend to believe that the threshold might be closer to 5 or 6K if one could execute both trades online.

some online brokers - bmo investorline is one - have systems that are capable of handling both transactions online within a second. Other brokerages would require a phone call to a representative for the sell side in the 2nd currency, and possibly a higher commission.
 

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some online brokers - bmo investorline is one - have systems that are capable of handling both transactions online within a second. Other brokerages would require a phone call to a representative for the sell side in the 2nd currency, and possibly a higher commission.
This is a very interesting strategy. I haven't done it myself but with forex charges being what they are these days (around 2%), this becomes worthwhile when you want to exchange $5K or so.
 

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1) The trick with buying and shorting interlisted stocks is described in details on Financial Webring Forums, just type in "Norbert's Gambit" in Native Search box:

http://www.financialwebring.org/forum/viewforum.php?f=22

2) It's much easier to do currency conversions with Interactive Brokers Canada. For transactions over U$25,000 you make the conversion using interbank forex quotes. Unlike other forex brokers IB doesn't act as a market maker taking one pip for themselves, they just charge a commission:

- 100,000 trade - commission about $2.70
- $1,000,000 trade - commission about $27.00

Trading hours are as follows (try to get that a big bank broker):

- amount < U$ 25,000 - IDEAL ---- 19:00 - 17:00 Sunday-Friday
- amount >= U$ 25,000 - IDEALPRO - 17:15 - 17:00 Sunday-Friday

Here is a screenshot how it looks in the account, see Market Value - Cash section (FX Portfolio section only shows the latest trades):

http://img718.imageshack.us/img718/5144/03172010014343.png

You can either use IB's "Forex Trader" module:

screenshot: http://img191.imageshack.us/img191/2874/03172010014543.png

web page (doesn't work with some browsers):

http://www.interactivebrokers.com/en/software/tws/whnjs.htm

or the main Trading Window as explained in this video:

http://ibkb.interactivebrokers.com/node/1172

With IB it doesn't matter if you make a leveraged forex trade (their leverage is 2.5% = 40:1) or just converting cash in your account (non-leveraged trade). In both cases you use the same trading platform and pay the same commissions. For transactions involving amounts of less U$25,000 they take a pip or two for themselves.

IB's way is much more flexible choice then "Norbert's Gambit" because it allows converting to all major currencies and not just USD. In late 2008, when most currencies were falling against the USD, Japanese Yen was actually rising. In summer of 2009 the strongest currency among the majors was Australian Dollar. Now it's CAD. As currency trends keep changing all the time it's just a matter of time when CAD goes out of favour.
 

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you are right about IB ... but the majority of canadians investing online do not have interactive accounts & probably will never have them.

so the buy/sell duo is appropriate for clients who are happy at their present onliner and who might exchange 8K or 10K only a few times a year. They are not going to open IB accounts just for that handful of trades.

i wasn't describing a buy-and-short-interlisted-stocks strategy. With that idea, we are getting closer to the activities of the arbitrageurs. What i was describing was a strategy that could be carried out by the myriads of ordinary canadians who are occasionally seeking a routine dollar exchange for some purpose like travel to the US or purchase of a US security, or they may be seeking conversion from USD back to CAD as an infrequent currency trade.

i've whizzed thru norbert's gambit & most of the many pros and cons of such a currency trade operation - essentially, bypassing exchange fees by washing one's cash through 2 interlisted trades carried out at the same time - are discussed there.

noticed several posters who said they have to phone their online brokers to execute the sell side & these posters reported argumentation & flak from the licensed reps. This was a few years ago. In one case the poster said it had taken him 25 minutes to complete the 2-legged trip. Ouch. Myself, i would be looking to complete both sides in 2 or 3 minutes at most. The bigger the time frame, the greater the chance that the share price or the currency or both will move against the trader.

i think the reason this practice is not more widely utilized is that many investors - perhaps most investors - are not comfortable with pairs trading. The risk of getting trapped on one side can be daunting.

as it happens, i stumbled into the insight that bmo investorline's trading platform can support 2 online orders, within seconds of each other, for a typical interlisted pairs trade, at least for accounts that have sufficient margin. In this case the proposed example was buy POT in CAD on toronto, immediately sell POT in USD on new york. I haven't tried a practical example of this, but i believe bmo's system would accept the 2nd and selling order. I am told the account would look a bit messy for up to 5 days (this could be enough to discombobulate some investors), but eventually the 2 positions will flatten.

obviously completing the trip with 2 online trades is the most cost-effective way to exchange currencies. Having to phone a licensed rep would add to the cost, but even in this case costs could hardly exceed $50-70.

potash was also mentioned in norbert's gambit. Yes POT is a good pick for this currency exchange strategy. You need an expensive stock so that if you have to phone a human rep & pay a higher commish including an 8-cents-per-share charge for the sell side, at least the shares will be as few in number as possible.

btw i hear that tdw will be bringing out international trading w multi currencies soon. Apparently their UK division already uses such a platform. It's a question of adapting this for clients based in north America. Depending on the spokesperson, td's international platform will debut as early as summer 2010 or as late as couple years from now.
 
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