Currency Conversion Using DLR and DLR.U

20216 Views 25 Replies 6 Participants Last post by humble_pie, Apr 20, 2012

fatcat

Discussion Starter · Apr 18, 2012

i have 2 questions, one about procedure and the other about theory

first, to people that have done this, are you being charged to transfer the shares from one side to the other ?
tdw told me that i could buy on the discount side but would have to transfer and then sell using full service ($43 bucks!)
this ups the cost quite a bit though it's still lower than the standard exchange method

second, i can't wrap my aging brain around this, the horizon guy (very helpful by the way) told me that when you buy (i would be buying dlr.u) you are locking the exchange rate in effect at the time of purchase

but i said that no, you are going to be exposed to currency movement during the 3-days of settlement process

who is correct here ?

1 - 20 of 26 Posts

Argonaut

· #2 · Apr 18, 2012

Do not accept that explanation by TDW, you should be able to do it for just the regular commission each way.

Also, the Horizon's guy is correct, when you purchase DLR you are buying the US dollars right then.

Spudd

· #3 · Apr 18, 2012

All you do is buy DLR and then sell DLR.U. Where I got messed up when I tried it the first time was I bought DLR on the Canadian exchange and then for some reason I thought I had to sell DLR on the US exchange to get the USD. However DLR.U is also on the Canadian exchange. When you sell DLR.U you will get USD. This works great in the RRSP account if you have auto-wash set up. If you're trying to do it in a cash account, I don't know the details of how it works... you might have to get them to journal it into your USD account before you sell the DLR.U.

Also, if you're doing it in RRSP at least, you don't have to wait 3 days. You can buy and then sell immediately. Not sure if it's also true for cash account.

humble_pie

· #4 · Apr 18, 2012

no, argo, that's not quite right.

the td client working in non-registered *can* buy DLR in canadian for cheap online commish.

a difficulty arises over selling DLR.U to collect the US dollars. Like every other broker whose system is built on ISM, it's complicated for tdw to do this in non-registered account.

1) the slow cheap train: client buys DLR in canadian account with cheap online commish, then waits 3 days for DLR to settle. Client then phones to request journal to DLR.U in US account. Another day or 2 for the journal to be accomplished at no charge & he can sell DLR.U for another cheap online commish. Total cost under $20.

2) the express rapido: client buys DLR or any other liquid interlisted stock in canadian account with cheap online commish but wants his US dollars instantly if not sooner. To get em, he has to phone to request instant journal, as in that very same second.

like every other broker whose mainframe system is ISM, tdw is able to do this, but it requires a fair amount of manual work from both the representative & the tdw credit department & frankly it's a big pain. Therefore tdw charges an agent-handled sell commish for clients who cannot wait for settlement.

i'm somewhat dismayed by people complaining about tdw over this, so may i mention that:

1) all tdw gambits in rrsp are automatic, instant, cheap, include free no-charge journalling;

2) the only gambit trades that present the above difficulties at tdw are those in non-registered cash or margin accounts;

3) folks who gambit a lot should open an account with an ADP mainframe broker like bmo or roybank, because gambits are easier done on ADP systems; and

4) many of the other brokers built on ISM, as is tdw, refuse to do any gambit trades whatsoever.

See less See more

humble_pie

· #5 · Apr 18, 2012

spudd is right, but only about rrsp & tfsa accounts. In these accounts, gambits are seamless, easy & cheap.

it was cmf forum member avrex, i believe, who contributed the knowledge that currency gambits do work seamlessly in tdw tfsas. Up until then, all we had known was that they work in rrsp.

fatcat

Discussion Starter · #6 · Apr 18, 2012 (Edited)

first, thanks everyone for your replies

i am in a tdw cash account non-rrsp
time is not a factor, i can wait
but it looks like, pie, you are saying i will have to pony up an in-person $43.00 fee because after i buy in dlr.u, i will then wait for settlement, and then call tdw (and incur the fee) and ask them to a) journal over and b) sell into canadian

pie, where are you at on the issue of locking the exchange rate ?
do i lock the rate at the moment i buy dlr.u or am i exposed to currency fluctuation (i think i must be)

if i am, then norbert is perhaps a better way to go, because if they are going to nick me for the $43.00 anyway, i might as well use norbert and at least get a reasonable lock on rates by doing it fast

just to be clear, i own USD and will be buying dlr.u (usd denominated version) to back into canadian, all the examples use the other way

humble_pie

· #7 · Apr 18, 2012

oh my goodness.

how have we gotten so confused.

please forgive me for a few minutes cat because i think i have to weep ...

ps any kind of currency cross-trade is a gambit. A norbert gambit a canadian capitalist gambit a pie gambit, whatever.

Just a Guy

· #8 · Apr 18, 2012

There was a clear explanation on how to do this in either MoneySense or Moneysaver a few months back...if I get some time I'll try and find it.

humble_pie

· #9 · Apr 18, 2012

cat, assuming you will take the low-cost slow train in tdw non-registered:

- buy DLR online with cheap commish in canadian account;

- wait 3 days for settlement & phone to request journal to US account which will be free. Journal will take another 1-2 days;

- when DLR.U shows up in US account, sell it with another online order with cheap commish.

please notice that the agent-handled commish (usually greater than $43, btw) applies *only* to clients wishing to carry out instant gambits.

as for locking in the exchange rate, the route DLR --> DLR.U is locked from the first moment of the DLR purchase. However, clients should keep in mind that the opposite direction, namely DLR.U --> DLR, will expose the gambit trader to currency fluctuation during the 5 days of a slow gambit, because only one of the DLRs is pegged.

humble_pie

· #10 · Apr 19, 2012

fatcat said:
just to be clear, i own USD and will be buying dlr.u (usd denominated version) to back into canadian, all the examples use the other way

oops, just re-read your post & yes, you are travelling USD --> CAD, so the slow DLR route will expose you to 5 days of currency fluctuation.

an instant gambit will eliminate nearly all currency fluctuation. It is quite a bit trickier to do. It will require a phone call to a licensed rep to accomplish the sell side. The commission will be the standard agent-handled commission, with $43 only as the minimum.

normally we would not use DLR as the carrier stock because there is no point paying the basis points to horizon, the fund manager. Fast gambitters need to select an interlisted stock that is liquid in both canadian & US markets, plus stock should be having a quiet day. No earnings, no dividends, no news. Quite coincidentally, TD bank itself is a good carrier stock for gambit purposes. Notice that it is best to use an expensive stock because the sell commission will be based on the number of shares involved.

there is a 2011 how-to article on Canadian Capitalist blog with explicit tips on how to carry out instant gambits at td waterhouse. I'll look up the citation & get back to you.

See less See more

humble_pie

· #11 · Apr 19, 2012

here's the Canadian Capitalist article with tips about how to do fast gambits at td waterhouse:

http://www.canadiancapitalist.com/instant-norbert-gambit-for-all-td-waterhouse-investment-accounts/

fatcat

Discussion Starter · #12 · Apr 19, 2012

so many explanations are oriented in direction CAD to USD and i am going the other way around
it makes sense to me that i am exposed if i am coming from the USD side since i have USD to start with

i had looked exactly at TD for doing a norbert

thanks for that article on tdw, the takeaway for me: be prepared

i just think the CAD is going to weaken again and i am so tempted to just buy the dlr.u and let it settle and wait for an opening

bah ! ... :hopelessness:

anyway thanks pie for your help, i do appreciate it

Argonaut

· #13 · Apr 19, 2012

Ah, so more and more details are out and we got to the bottom of this. I would just buy DLR.U and wait for all of the settling if you want to go that route. All you're doing is holding US dollars with that ETF, which you are/were doing already. It'll just take a few days to exchange it. Other way would be to buy an interlisted stock of course.

But if you think the CAD is going to weaken, why would you be buying Canadian dollars?

fatcat

Discussion Starter · #14 · Apr 19, 2012

Argonaut said:
Ah, so more and more details are out and we got to the bottom of this. I would just buy DLR.U and wait for all of the settling if you want to go that route. All you're doing is holding US dollars with that ETF, which you are/were doing already. It'll just take a few days to exchange it. Other way would be to buy an interlisted stock of course.

But if you think the CAD is going to weaken, why would you be buying Canadian dollars?

well, long term i am thinking it will strengthen against the usd and i would rather own us equities through canadian currency hedged products (despite cc's well reasoned arguments against doing so) since they are now very competitive against their usd versions ... i have other sources of us funds and don't want to be overexposed to the usd

on another thought for both you argo and pie

i am thinking that perhaps i could buy the same amount of units/dollar or dollar amount in both dlr and dlr.u and then only journal the dlr.u over to the canadian when they both settle and then sell both, that would effectively lock my rate and hedge my bet wouldn't it

don't these 2 funds move against each other in mirror ? (for some reason anything to do with currency just seems to be my blind spot)

like if dlr.u went up (good) dlr would go down (no problem becasue dlr.u has gone up) and vice versa and they should hedge each other

humble_pie

· #15 · Apr 19, 2012

cat i do not believe that simultaneously buying DLR plus DLR.U while intending to sell both into canadian dollars is efficient. One would end up paying the MERS to the fund manager plus the 4 commissions to the broker.

parties wishing to speculate in CAD/USD outside forex trading might investigate FXC, the rydex canadian currency etf. As you will see, it has LEAPS options going out to january 2014, so one could hedge one's currency bet for the next 21 months, if one wanted.

http://ca.finance.yahoo.com/q?s=FXC

(aside to argo) we are not really at the bottom of this yet. Why would a person buy DLR.U & wait 5 days, thus incurring MER expense, 2 online commissions plus currency exposure risk for another 5 days.

this is surgery on the instalment plan, without anaesthetic. Looks like butchery to me.

the way i see it, it's far better to pick your day, pick your carrier stock, pick your waterhouse representative (only go with one who knows how to do a gambit) & get the entire job done in one minute.

but be sure to read the above-cited article on Canadian Capitalist blog first. The most important hint in it is this: Do not release your buy order until you have your tdw representative lined up on the phone & ready to send his sell order in the opposite currency.

now that's minimally-invasive microsurgery.

See less See more

fatcat

Discussion Starter · #16 · Apr 19, 2012

humble_pie said:
cat i do not believe that simultaneously buying DLR plus DLR.U while intending to sell both into canadian dollars is efficient. One would end up paying the MERS to the fund manager plus the 4 commissions to the broker.

parties wishing to speculate in CAD/USD outside forex trading might investigate FXC, the rydex canadian currency etf. As you will see, it has LEAPS options going out to january 2014, so one could hedge one's currency bet for the next 21 months, if one wanted.

http://ca.finance.yahoo.com/q?s=FXC

(aside to argo) we are not really at the bottom of this yet. Why would a person buy DLR.U & wait 5 days, thus incurring MER expense, 2 online commissions plus currency exposure risk for another 5 days.

this is surgery on the instalment plan, without anaesthetic. Looks like butchery to me.

the way i see it, it's far better to pick your day, pick your carrier stock, pick your waterhouse representative (only go with one who knows how to do a gambit) & get the entire job done in one minute.

but be sure to read the above-cited article on Canadian Capitalist blog first. The most important hint in it is this: Do not release your buy order until you have your tdw representative lined up on the phone & ready to send his sell order in the opposite currency.

now that's minimally-invasive microsurgery.

excellent pie, thank you, in your example, i don't see costs as too burdensome, you have $20 trade costs, spread costs and mer costs which don't add to much (like about $40 per 10K i think) the deal killer for me is the 5 days wait, things break against you and you either have to take a hit or just sit in the fund until things turn ... i think the gambit is the way to go, though i would still like to hear from anyone who has done the dlr/dlr.u route ... also, it's good to know about the rydex fund as i may be able to use it to offset other usd funds

in the end, norbert is cleaner and faster and cheaper i think

humble_pie

· #17 · Apr 19, 2012

cat there are other variations of gambits, too.

there are option gambits. The underlying stock is held one currency, usually canadian, while options are sold in US options markets.

there are also half-gambits, which are a plain buy or sell in the opposite currency. Occasionally, for example, it has happened that i set out to buy an interlisted canadian stock while having too many US dollars sitting in cash. So i would blot up the excess USD by purchasing cnq, bce, roybank or whatever on US market. (one must be careful to journal these shares, after settlement, to the currency account that matches the currency in which the dividend will be paid.)

one can also sell from an existing interlisted holding in USD if one wants. (one might have to get the shares journalled first, plus one should be mindful of the tax consequences of such a sale - there will be a capital gain or loss.)

the wonderful fact is that an online discount brokerage account is a perpetual source of zero-fee currency exchange. No one who works it right should ever pay an FX fee again.

See less See more

Argonaut

· #18 · Apr 20, 2012

The half-or-three-quarters-gambit I like to employ is a nice one for those with gold allocations. I often hold gold in both USD and CAD, and sell one or the other and rebuy with the opposite currency.

fatcat

Discussion Starter · #19 · Apr 20, 2012

great thread and thanks everyone
my take is that as you say pie, there are many gambits
you can play interlisted stocks in your portfolio with buys and sells and since journalling is free, can move money easily this way
and as you say argo, if you are in and out of gold, it's also a great way go
this is a no brainer for people that are active traders

some thoughts on where it gets more tricky:
1) those of us who are strictly etf long term holders find it a little trickier to use the half-gambit and should probably use the full norbert
2) dlr to dlr.u is dead simple since when you buy dlr you are locking in a predictable amount of us dollars and aren't exposed to currency fluctuations, this is the preferred method if you are going CAD to USD and aren't in a hurry
3) dlr.u to dlr is trickier since, if you want to do it on the cheap, and wait for settlement, you are exposed to fluctuations
4) another solution is to do norbert using dlr.u to dlr (or dlr to dlr.u if you are in a hurry), the advantage being that price fluctuations and bid/ask spreads are somewhat more predictable than using a stock (though bid/ask on stocks with high volume is not a problem, price fluctuations on dlr/dlr.u is less volatile i think, though i may be wrong, experienced norbeters can weight in here)

See less See more

humble_pie

· #20 · Apr 20, 2012

fatcat said:
4) another solution is to do norbert using dlr.u to dlr

gosh, no, those MERs are .45% each, are they not. So one would be surrendering nearly 1% of the money involved to horizons, would one not.

let's keep in mind that DLR.U is pegged, but DLR is not pegged, so the gambit trader travelling USD --> CAD, ie dlr.u to dlr, has got 5 days of currency fluctuation exposed if he takes the slow train.

and if he's taking the rapido, why hand that extra .90% over to the mutual fund company. That .90% is a surcharge on the ticket.

better to just grab a nice-looking train while it's idling in the station, then leap hobo-style from its roof to the roof of the train chuffing alongside in the next track over.

1 - 20 of 26 Posts

This is an older thread, you may not receive a response, and could be reviving an old thread. Please consider creating a new thread.