[NorthernRaven]

I'm working at converting over to a passive ETF index portfolio, and if I choose to go with US-traded funds for US and international equities (Vanguard's VTI/VEA/VWO for instance) instead of the currency-neutral Canadian offerings, I'll have a need to purchase a large chunk of $US-denominated stuff in my RRSP. The wonder that is the internet alerted me to Norbert's Gambit, which might be useful in saving the normal currency conversion costs. I whipped up an online calculator to try and get some sense of the savings:

http://www.northernraven.ca/financial/NGcalculator.php

You can enter an amount, your trading commission, and choose from a range of currency conversion spreads that you might otherwise experience. For a number of inter-listed stocks, it will choose the whole number of shares closest to your chosen amount at the Toronto exchange Ask price, and calculate the $USD realized by selling at the US exchange Bid price. The "Savings" column will show the difference from what purchasing the same amount of $USD at the current rate plus the spread you chose, minus twice the commission amount.

The output is quite ugly as I whipped this up fairly quickly yesterday, and needed to see a bunch of intermediate calculations, but I'd love to get feedback on the basic calculation method, or if there are other stocks that people like to use for this. The quotes are coming from Yahoo Finance, although I have to look into the details of what they are providing. The results go goofy outside of normal trading hours, as the bid-ask numbers are very wide.

 

[humble_pie]

don't mean to rain on your parade, but it's not anybody's gambit. Hundreds of thousands of investors have practiced it for years without ever hearing of norbert. There's no patent on the manoeuvre.

there are half-gambits, partial gambits, even option gambits. The variations are easy to do once an investor catches on.

what use is a calculator. Most online brokers are charging just under 2% of MI as a round-trip currency conversion fee. The exceptions are the minority of brokers with built-in forex trading capacity. Whereas an investor can migrate his cash from one currency to the other via the gambit at a cost of 2 small commissions, usually less than $10 each.

there's plenty of discussion here on this forum & over on Canadian Capitalist's blog (good details on the latter.)

choice of the stock to use for a gambit is critical. Among the interlisted stocks, the investor/trader needs 1) steady high volume, ie exceptional liquidity & tight spreads on both toronto & US market; and 2) an unusually quiet & stable trading day. If he's trying to buy USD by shorting the US side of an interlisted stock, then a steadily upticking hour or two will help.

imo the only 2 stocks that fit this bill, day after day, week after week, year in & year out, are pot and rim/rimm. Perhaps also barrick, now that we're having a full-blown gold rush.

 

[Belguy]

Maybe I am being stupid or overly simplistic here but I really don't concern myself much with exchange rates. I just hold a mixed portfolio of some hedged, and some non-hedged (Vanguard) ETF's which I simply hold 'forever' except possibly to trade very occasionally for rebalancing purposes.

I suppose that, if you are going to do a lot of buying and selling and churning your portfolio, then maybe you would have to concern yourself more but I am a 'buy and hold' investor.

While admitting that I am cheap and try to avoid high management fees, I just don't worry about this hedging and exchange rate situation.

How dumb is that??

 

[slacker]

@belguy: The question is, if you have the opportunity to save $600 once in a while, and all it took was a few mouse clicks on the computer, would you do it?

Suppose you're doing a rebalance, and you figured our that you need to buy $25,000 of VTI in USD. The currency spread on TDWH is about 2.5%. 2.5% of $25,000 is $625, minus the 2 or 3 trades necessary to execuite the "gambit", yields a savings of about $600.

PS: TDWH sucks when it comes to currency conversion, users of less expensive brokerages may not need to use the gambit at all.

 

[CanadianCapitalist]

Maybe I am being stupid or overly simplistic here but I really don't concern myself much with exchange rates. I just hold a mixed portfolio of some hedged, and some non-hedged (Vanguard) ETF's which I simply hold 'forever' except possibly to trade very occasionally for rebalancing purposes.

I suppose that, if you are going to do a lot of buying and selling and churning your portfolio, then maybe you would have to concern yourself more but I am a 'buy and hold' investor.

While admitting that I am cheap and try to avoid high management fees, I just don't worry about this hedging and exchange rate situation.

How dumb is that??

OP wants to save on the *initial* foreign exchange conversion. I'm a long-term, currency unhedged investor as well but I like to save the 1 to 1.5 percent charge on the initial CAD to USD currency conversion. If you can save $100 or so, wouldn't you?

 

[warp]

Maybe I am being stupid or overly simplistic here but I really don't concern myself much with exchange rates. I just hold a mixed portfolio of some hedged, and some non-hedged (Vanguard) ETF's which I simply hold 'forever' except possibly to trade very occasionally for rebalancing purposes.

I suppose that, if you are going to do a lot of buying and selling and churning your portfolio, then maybe you would have to concern yourself more but I am a 'buy and hold' investor.

While admitting that I am cheap and try to avoid high management fees, I just don't worry about this hedging and exchange rate situation.

How dumb is that??

You are not "cheap" in trying to avoid how fees,

In fact you should ALWAYS avoid fees where possible

Over the long run its the investor who saves these fees that wins.
Its pure mathematics.

In terms of forex costs. I basically believe it will be a wash if you hold investments long term....and with the canadian dollar so high right now..it may be a good time to buy US assets.

Personally , I have a canadian dollar account, where I buy all my canadian holdings, and I also have a separate $US account, where I buy all my US/international holdings.
All the US dividends are paid in $US, and stay in $US,
You gotts keep track of US withholding tax on these tho....and use them as a tax credit at tax time


Anthony

 

[NorthernRaven]

Not on commission for any particular name, it was just that most Canadian discussions I came across used the "Norbert's Gambit" shorthand. I can always refer to it as the "Generic Currency Gambit"...

I might normally just take the TDW rate and avoid the complexities, but this would be a very large one-time conversion, and even at 0.65% it is a few hundred dollars. Worth doing a little research, anyway!

@slacker - are you really getting a 2.5% CAD->US commission quoted by the TDWH systems? I've tested some different amounts through the first steps of their online fx conversion screen, and it seems to start at around 1.45% for small amounts. By $30,000 it has dropped to around 0.8%, and down to 0.65% at around $65,000. I was told it may be possible to book a better rate over $60,000 by calling them directly, but I haven't checked on what that might be. It if is low enough, I may just do that.

Again, my situation is inside an RRSP, so outside fx options, or doing the "shorting" version of this method, aren't an option. That might be one reason I'd avoid this - my understanding is that I'd have to buy the Canadian side, then contact TDW to journal it so it could be sold on the American exchange, which puts one an extra potential nuisance or hiccup in the way.

 

[humble_pie]

raven now that we see it's an all-rrsp manoeuvre perhaps you could discuss it w tdw ahead of time, so as to iron out all details.

technically, brokers aren't supposed to short the box; that is, they're not supposed to let clients buy long first, then short the same stock. That's why a classic gambit means shorting first, then zooming to place the buy order in the other currency lickety-split.

seems to me, though, that quite a few brokers are letting the don't-short-the-box rule slip by them, as some people are indeed buying long first & then shorting a minute or 2 later.

this is why i think it would be wise to discuss & plan in detail ahead of time. Because it's an rrsp, i doubt you'd be allowed to short first. Some of this would require a phone call, which in turn might mean that the representive will a) charge you the higher phone-in commish, or b) charge you the web commish if he feels like it or if you're a very nice or VIP client ... you can see there are lots of tricky little dips to be planned out in advance. It would be a disaster, in an rrsp, to complete half of a gambit online & then get blocked from doing the other half.

some reps are more helpful than others. Try to discuss with a helpful one. One point to discuss is the "better rate" that you mention the big green can offer for amounts over 60k. Typically, these will always run at a fixed percentage better than the web-quoted rate for, say, 50k, so if you can establish what the gap is, then you can do your own guesstimating for the larger amounts from then on. All this is in case you decide to ask tdw to do the currency conversion for you.

second point to discuss is to iron out all the details about shorting & commish in an rrsp for the gambit trades. If this route seems possible for you, perhaps you could ask this helpful rep to put a summarizing note on your account. That way, when you get around to doing the trades, the path through the maze will be clearly marked.

 

[NorthernRaven]

I think humble_pie's point about shorting was something he mentioned in an earlier useful post here. It wasn't clear if this was actually shorting - it may be technically, but perhaps since it is effectively just removing the delay in clearing between a purchase and a resale it doesn't trigger troubles that would make the brokers disallow the trades? I'm right that theoretically if one were willing to take the risk of the stock slipping, one could buy, wait 3 days for it to clear, and have them journal it to the US side for a sale?

In any case I'm not planning on doing this immediately if I do it at all, and I'd definitely line it up with TDW ahead of time if it comes to pass. An extra $20 for an human-conducted trade wouldn't be a big deal in the circumstances, if they insisted. I would be interested if anyone has done this in an RRSP at TDW (or another big-5 discount broker) lately and has any tales to tell.

Actually, it occurs to me that there are provisions for swaps between an RRSP and your non-registered assets? I'll be doing similar one-time sales of existing mutual funds and making index ETF purchases on non-RRSP stuff as well. If the gambit whose non-name must not be mentioned is easier outside an RRSP I might be able to do it and the purchases there, then swap the ETFs into the RRSP. I'll have to look into that.

 

[patmanz]

I would be interested if anyone has done this in an RRSP at TDW (or another big-5 discount broker) lately and has any tales to tell.

I am in the same situation, will need to convert large sum of CDN to USD in the near term, i am also interesting in feedback if anyone done this lately and how it worked out.

 

[humble_pie]

CC has an excellent description of his own first experience with the gambit over on his blog. I think it's a must-read.

patman it's not clear whether your exchange must be only in an rrsp or whether it can be in a non-registered account. The latter is very simple, imho.

another method that might suit you is the partial gambit as practiced by another member of this forum. He posted that whenever he needs USD, for example for a vacation, he will select an interlisted stock that he already holds in his canadian account & simply sell this holding, or part of it, in his US account. He did mention that this is mostly worth doing for amounts of 10k and upwards.

my only thought about this manoeuvre is that the selling of an existing holding will trigger a taxable event, which will mean a capital gain or loss. On the other hand a classic gambit (investor/trader has no pre-existing long position in chosen stock) will entail almost no tax consequences whatsoever, as the 2 transactions are carried out within a minute or 2 of each other & stock price should not move by more than a few pennies in that time frame.

 

[patmanz]

CC has an excellent description of his own first experience with the gambit over on his blog. I think it's a must-read.

patman it's not clear whether your exchange must be only in an rrsp or whether it can be in a non-registered account. The latter is very simple, imho.

another method that might suit you is the partial gambit as practiced by another member of this forum. He posted that whenever he needs USD, for example for a vacation, he will select an interlisted stock that he already holds in his canadian account & simply sell this holding, or part of it, in his US account. He did mention that this is mostly worth doing for amounts of 10k and upwards.

my only thought about this manoeuvre is that the selling of an existing holding will trigger a taxable event, which will mean a capital gain or loss. On the other hand a classic gambit (investor/trader has no pre-existing long position in chosen stock) will entail almost no tax consequences whatsoever, as the 2 transactions are carried out within a minute or 2 of each other & stock price should not move by more than a few pennies in that time frame.

I don't think there any difference between doing this in a reg vs non-reg account.

As a previous poster said, if you are converting large sum, you can actually call them and ask for a better rate. at 0.6%, not bad !

Just to make sure i understand correctly, here how it should go;

1. Find a TSX/NYSE interlisted stock with high liquidity
2. Buy shares on the TSX
3. Phone TD and ask them to 'journal' the stock to your US account and sell them at US market at the current BID
4. Profit ???

One of the drawback i see: to perform the gambit operation you actually need to find a cooperative non-dummy phone rep to execute the other part of the trade !

 

[slacker]

@NorthernRaven: I got ~2.3% a few months ago, when I bought about $20k of VTI.

 

[NorthernRaven]

@NorthernRaven: I got ~2.3% a few months ago, when I bought about $20k of VTI.

That seems rather high. I just tried the system now on $20,000. It quoted $1.0426 to buy USD, and $1.0153 to sell. That produces a midpoint spot rate of $1.02895, which seems to be about right. This is a spread of +- 1.33%. I've got enough with them to hit the $100K needed for $9.95 commissions and such, but otherwise not a special or longstanding customer. You might want to try having WebBroker quote for you (Transfers/Foreign Exchange) and see what comes up - that 2.3% seems pretty nasty!

 

[humble_pie]

raven, is that tdw fx calculator you're using on their new global trading platform ? As you've described it, the USD conversion rates you've been getting esp on larger amounts are roughly 2/3 or less what a representative might otherwise charge if a client phones in a request. What an uproar. I imagine they'll have to resolve this.

but i still maintain that the best USD foreign exchange deal for an investor who doesn't go to forex trading through IB or another broker that offers forex, is the gambit. A classic gambit would consist of 2 online trades, for a cost of less than $20.

there is reason to believe that tdw would permit an rrsp manoeuvre in which a client would buy first on toronto, then sell in the US a moment later. But i for one would discuss this with a td rep ahead of time & ask for a note confirming the details to be placed on my account. Plus, if the rep's view would be that tdw would charge the phone-in commish for the sell side, which is USD $39 plus pennies for each share, then i'd select potash as a hi-price stock so as to engage as few shares as possible.

ps something funny going on w the website now so i am sorry if this is a double post ...

 

[NorthernRaven]

raven, is that tdw fx calculator you're using on their new global trading platform ? As you've described it, the USD conversion rates you've been getting esp on larger amounts are roughly 2/3 or less what a representative might otherwise charge if a client phones in a request. What an uproar. I imagine they'll have to resolve this.

No, I'm just in WebBroker, going to the "Transfers" section, and choosing the "Foreign Exchange (Cdn/US)" link on the left. I enter the amount, choose the Canadian dollars radio button, and select to transfer from the Canadian subaccount to the $US subaccount. Hitting Next brings you to a verification screen which shows the rate (good for 1 minute, or 30 seconds on larger amounts) before you would complete the transaction (which I never have). I then go back and do the same thing going the other way from the US to the CDN subaccounts. I'm assuming they have an equal spread both ways, and the midpoint does seem to match with the spot rate checked elsewhere. I can't see how I could be goofing up the math, but I'd love to have another TD customer double check it.

I first did this earlier this month, and I'm pretty sure it was before the Global Trading announcement (I don't have that enabled, as far as I know). The spreads have been consistent, based on the amounts, in all that time. If they were higher earlier this year, perhaps TD has been getting enough grief on them that they've had to bring them into line?

@slacker - was your VTI trade all done automatically, or did you go through the phones for any reason?

 

[HaroldCrump]

I don't think there any difference between doing this in a reg vs non-reg account.

You cannot short sell within a reg. account, as far as I know.
If this strategy involves short selling first, how would you do it inside an RRSP/TFSA?

 

[Jungle]

You cannot short sell within a reg. account, as far as I know.
If this strategy involves short selling first, how would you do it inside an RRSP/TFSA?

This is what Humble was explaining to me in that last thread you found where I was asking the same thing. "You cant short against the box" IE, there is no margin inside the RRSP. I think it takes three days to settle a trade in the rrsp. Thus why you can't do it back to back.

Although I would like to know what happens, if you did it anyway.

 

[NorthernRaven]

I've tested some different amounts through the first steps of their online fx conversion screen, and it seems to start at around 1.45% for small amounts. By $30,000 it has dropped to around 0.8%, and down to 0.65% at around $65,000. I was told it may be possible to book a better rate over $60,000 by calling them directly, but I haven't checked on what that might be. It if is low enough, I may just do that.

I recently "called directly" to TDW and asked for a quote on $100,000. The rate that came back seemed to work out to around 0.30%, given the spot rate at the time. Their WebBroker online interface doesn't seem to quote anything less than 0.65%, so if you are a TDW customer and you are doing $60K or more in one shot, definitely call them.

The forex folks at Knightsbridge (www.knightsbridgefx.com) said they'd probably be around 20-30 basis points on $150,000 (maybe a bit better for regular customers), and 40-55 basis points on $25,000.

 

[humble_pie]

but raven these aren't gambits, these are plain foreign exchange fees charged by 2 financial institutions.

plus one would have to include the inconvenience & time loss involved in driving one's cheque around town to knightsbridge & back, which i think would "cost" an investor more than the tiny reduction in forex fees that knightsbridge offers.

in all cases you are posting foreign exchange fees in the 3 figures. I doubt many posters here are converting 100k at a crack. More likely amounts would range from 10-50k. So you are speaking of foreign exchange fees of a few hundred dollars.

whereas a classic gambit will cost approximately $20 to exchange 50k or more, for those who pay $10 commish per trade.

the purpose of the gambit is to bypass conventional foreign exchange fees.