December 9, 2017 and currency conversion using Norbert Gambit and DLR

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On Friday, the S&P 500 and Toronto were each up about 0.5%.

Canadian Western Bank was up 2.2% as the market further digested its earnings report released Thursday morning.

Constellation Software was up another 2.3%. This has been a fantastic investment over the years.

The (high) Cost of Currency Conversion

I grabbed some figures on Friday to look at the cost of converting currency.

I looked at the cost to move money from a Canadian dollar investment account to a U.S. dollar investment account (or the opoosite direction) at my discount broker, TD Direct.

Option 1: Use the self-serve currency exchange feature in “EasyWeb”

The wholesale rate at the time was U.S. $0.77713 per Canadian dollar or Canadian $1.2868 to buy one U.S. dollar.

To move $10,000 Canadian to the U.S. account the rate quoted was $1.3066. That was 1.54% higher than the wholesale rate. For moving money from a U.S. account to a Canadian account the rate quoted was $1.2683. That was 1.44% less than the wholesale rate. On a round trip for $10,000 Canadian I would receive U.S. $7653. And if I then turned around and transferred it back to Canadian, I would receive $9707. So that’s a loss of $293 or 2.93% on a round trip

For a $50,000 transfer the exchange fee is lower and works out to 1.58% or $790 on a round trip or about 0.80% each direction.

I have said before that I consider this to be an outrageous fee on an all-electronic self-serve money transfer. I am basically certain that the bank can offset these trades electronically in the wholesale market at very little cost or risk.

This particular fee is simply something that banks don’t have to compete aggressively on at all. Not all bank fees are high. For example, I consider trading fees of under $10.00 to trade what seems to be any amount of shares to be very reasonable indeed. And Banks do compete aggressively on certain interest rates such as mortgage rates and GIC rates. But this exchange rate fee is something that they simply don’t have to compete on since it applies mostly to people who are sort of captive customers.

Option 2: Use the Norbert Gambit (works for investment accounts but not bank accounts)

This method uses an ETF which holds nothing but U.S. dollars and with units that trade in Toronto in both U.S. and Canadian currency. It seems to trade in sufficient volume (in my experience) to insure that the prices are very close to the wholesale exchange rate and there is only a small and stable bid/ask spread.

In this option, I would effectively buy U.S. dollars in my Canadian investment account by buying DLR.u which was trading at $12.80 ask. To complete the transfer I would need to call TD Direct and have them journal the DLR over to the U.S. side of the account where I could sell at the $9.94 bid. There would be a fee of $43 for allowing me to move the DLR before the three day settlement date.

I could buy 781 DLR.U at a cost of Canadian $9996.80. Then once the 781 units were moved the U.S. side of my account, I could sell it for the $9.94 bid netting U.S. $7,763.14. The exchange rate would be $12.80/9.94 = 1.2877 or just 9 basis points over the wholesale rate or just 0.07% or $7.00 on $10,000. However the total fees for the transactions would be $53, for a total cost of $60 or 0.60% which compares to the 1.54% indicated in Option 1 above.

If I turned around and used the Norbert Gambit to return the $7763.14 U.S. dollars to the Canadian dollar account, I would buy 780 units of DLR.u at the $9.95 ask (I would have to leave $2.14 U.S. not transferred back since I could not buy a fractional unit.)  I would then have the 780 units of DLR immediately “journaled” to the Canadian side (For a fee of Canadian $43) and sell at the $12.79 bid netting $9,976. My net cost including fees for the round trip would be the currency loss of $21 (or 0.21%) plus total transaction fees of $106 less the value of $2.14 left on the U.S. side for a total cost of $125 or 1.25% for the round trip which compares to the 2.93% round trip cost noted above if I simply used TD’s self-serve currency transfer system. That’s a saving of $168 on a round trip with $10,000.

For a round trip with $50,000 the exchange rate loss would remain 0.21% (assuming that this volume would not affect the bid/ask on DLR and DLR.u) so $105. The transaction fees would remain at $106 for a total cost of $211 or 0.42% which compares to the 1.58% or $790 using TD Direct’s self-serve currency transfer feature.


There are a lot of numbers above, but the point is that by using the Norbert Gambit via DLR and DLR.u I could save about $168 in transferring $10,000 into the U.S. and then back again which provides the cost of a round trip assuming no change in the exchange rate. And, I could save $579 on a round trip with $50,000. Since in reality, I would not do a round trip on the same day, think of it as about $84 saved in each direction on $10,000 and about $290 saved in each direction when transferring $50,000.


  1. Consider learning and using this Norbert Gambitt for transferring between Canadian and U.S. dollar investment accounts. (This does not work with simple cash bank accounts since you can’t buy and sell DLR in bank accounts. Also it would not be cost effective for less than about $3500 due to the transaction fees). And be cautious because it is easy to get mixed up with the multiple steps of this trade.
  2. It seems to me that the fact that we can save substantial amounts through this somewhat awkward Norbert Gambit process and despite the transaction fees, is strong evidence that the discount brokers could do this at a far lower charge and that they are making huge profits on currency transfers simply because the customers are essentially captive and most are not going to go to the effort of using the Norbert Gambit. In theory you could do the transfer outside of your broker through a currency broker if it involves a margin account but that would be inconvient. And, you have no ability to go to a currency broker if the money is locked inside an RRSP or other registered account. The fact that the banks are making very high profits on some of their fees provides an opening for the newer online competitors. Eventually, competition should drive some of the higher fees down.