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If you are Canadian and want to save on foreign exchange fees when you convert Canadians dollars to US dollars, you need to know about Norbert’s Gambit.

This money-saving tactic is named after Norbert Schlenker, who discovered a way to convert Canadian funds into US currency, and vice versa, without paying exorbitant currency exchange fees. 

If you convert your local currency the conventional way, you could be paying hundreds of dollars or more in fees. That takes away from your investment portfolio and your spending money.

With the right accounts in place, you can implement Norbert’s Gambit to save a ton of money in foreign exchange fees, whether you are buying stocks or withdrawing money to spend however you want.

What Is Norbert’s Gambit?

Norbert’s Gambit is a strategy used to avoid foreign exchange fees when exchanging Canadian and US currencies. This method involves using exchange-traded funds (ETF’s) and stocks that are available on Canadian and US stock exchanges. All you need to worry about are commission fees from the stock brokerage. 

It is legal. Furthermore, both Canadian and American investors can do it to save on foreign exchange fees.

How Does Norbert’s Gambit Work? 

Rather than using a bank to convert currencies, Norbert’s Gambit uses discount brokerages to avoid fees.

Banks and foreign exchange services make it easy to convert one currency into another by purchasing and selling various currencies in real-time. However, it is not a straightforward deal for consumers. 

Banks and other financial institutions profit from foreign exchange fees. They charge a higher rate than the basic exchange rate.

These companies profit on the difference. No matter what, the customer is paying more than they should.

Foreign exchange fees to convert CAD to USD and vice versa typically range from 1% to 4%. This can add up to a great deal of money when applied to hundreds of thousands of dollars. 

For example, let’s say you’re trading CAD $300,000 to buy an ETF listed on a US exchange. If you converted your money at a 2% exchange fee, you would be paying $6,000, which the bank or foreign exchange service would pocket.

Rather than the original CAD $300,000, you would be left with CAD $294,000 worth of US currency. 

But when you do Norbert’s Gambit, you can save that extra $6,000 by buying ETFs that trade on both Canadian or American stock exchanges.

You would purchase an ETF on one stock exchange, then have it transferred to the other exchange.

In other words, you would purchase shares in one currency and sell them in another. In this way, you’re exchanging currencies without the foreign exchange fees. 

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Steps On How To Use Nobert’s Gambit

Norbert’s Gambit is surprisingly easy to execute. All you need to do is find a discount brokerage to facilitate the strategy. Follow these steps to exchange your CAD to USD: 

Step 1. Open An Investment Account 

Find a discount brokerage that charges low fees to buy and sell shares and open an account. Popular options for Canadian investors include Qtrade, Questrade, and Wealthsimple Trade. Canada’s big banks also offer online self-directed investing platforms, such as TD Direct Investing and Scotia iTrade. 

Step 2. Buy A ETF That Trades In Both US and In Canadian Dollars

To simplify Norbert’s Gambit, a specific ETF was created explicitly for the purpose of using this strategy: Horizons US Dollar Currency ETF (DLR.TO). This ETF accurately reflects the current CAD to USD conversion rate. DLR.TO is the Canadian-dollar based ETF.

Step 3. Transfer Your DLR.TO

Your next step is to transfer, or “journal,” your shares of DLR.TO shares to DLR.U.TO. These are both the same ETF, but one is traded in Canadian currency while the other is bought and sold in US funds.

“Journaling” means taking a set of shares in one currency and holding them in another. In this case, you would be journaling your DLR.TO shares to DLR.U.TO. 

Step 4. Sell Your DLR.TO Shares

After you’ve journalled your DLR.TO shares to DLR.U.TO, you can sell them, leaving you with US funds in your account. You can choose to invest the money with your brokerage or withdraw it and deposit it into a bank account.

A Word About Capital Gains

Just remember: selling your shares means that you have to declare any profits on your income taxes. These are capital gains. You have to check with the Canada Revenue Agency to see if your US ETF capital gains are taxable in Canada or the US.

If you sell your share at a loss, you can use it on your taxes to offset any capital gains.

What Platforms Have Norbert’s Gambit?

As mentioned, you’ll need a brokerage to use the Norbert’s Gambit strategy. Luckily, there are several online brokerages available that can help you convert CAD to USD using this tactic, including the following:

Some trading platforms offer free stock trades.

You can also perform Norbert’s Gambit in the following types of accounts:

  • Non-registered accounts
  • Registered retirement savings accounts (RRSPs)r
  • Tax free savings accounts (TFSA)
  • Margin accounts

It’s important to note that your ability to perform Norbert’s Gambit in a specific account depends on the brokerage. You’ll need to check with your brokerage to see which accounts they allow this strategy to be employed in. 

How Much Money Do You Save With Norbert’s Gambit? 

The amount of savings you can enjoy using Norbert’s Gambit depends on how much money you’re converting. The higher the amount, the higher the savings.

Let’s use an example to illustrate. Suppose you want to buy USD $20,000 using Canadian funds. Right now, the exchange rate is CAD $1.37 for USD $1, according to the Bank of Canada. That means if you wanted to buy USD $20,000, it would cost you CAD $27,468, plus applicable fees.

Now let’s say you wanted to buy USD $20,000 from RBC, which is currently selling USD $1 for CAD $1.4036. In this case, your bank will sell you USD $20,000 for CAD $28,072. That’s $604 more than the basic conversion, which means the bank is pocketing this extra money. 

By using Norbert’s Gambit, you can sell your DLR-U.TO shares to get USD $20,000. At the time of this writing, DLR-U.TO shares are trading at USD $10.26. So, you could get USD $20,000 by selling 1,949.317 shares of DLR-U.TO. 

Then, you can buy these shares in DLR.TO, the CAD equivalent, which is currently trading at CAD $14.09. This would cost you CAD $27,465 (1,949.317 shares x CAD $14.09), which is $607 less than the $28,072 your bank would charge you. 

Imagine how much more you can save when you’re dealing with hundreds of thousands of dollars. 

Should You Use Norbert’s Gambit? 

Using Norbert’s Gambit only makes sense if you’re saving more than what you would pay in foreign exchange fees. It’s important to do the math before choosing to implement this tactic to see what the numbers look like, and that includes factoring in brokerage fees to keep your account active. 

Based on the example above, it would be worth it to use Norbert’s Gambit, especially if you’re trading tens of thousands of dollars or more. But if the bank’s exchange rate is at par with the Bank of Canada’s rate, there may be little reason to use Norbert’s Gambit. 

Further, this tactic might not make much sense if you’re in immediate need of the money. It takes some time to set up your brokerage account and trade between the two stocks. 

Other Ways To Save On Exchange Fees

Norbert’s Gambit is a savvy way to save on foreign exchange fees, but there are other ways to do so, including the following:

Minimize Your Exchanges 

The more often you convert one currency into another, the more you’ll pay in foreign exchange fees. Every transaction will cost you, so keep your exchanges to a minimum. Only exchange when you absolutely need to.  

Use US Dollar Credit Cards When You Travel

If you frequently travel to the US, consider applying for an American USD credit card. Most Canadian credit cards charge a foreign transaction fee of up to 2.5% on top of the exchange rate. That can add up to quite a bit, especially if you have a tendency to rack up your credit card bill.  

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Compare Bank Exchange Rates

Every bank establishes its own currency exchange rates, and some may be cheaper than others. If you’re planning to convert a few thousand dollars, even a fraction of a percent can make a big difference in savings. It pays to shop around for the lowest exchange rate. 

Know Your Break-Even Point To See If Norbert’s Gambit Will Really Save You Money

When you see your ETF shares, you will still have to pay brokerage fees and commissions. That is another thing to watch out for when choosing your discount brokerage. Try to choose one that minimizes fees and commissions. 

It is also a good idea to choose a platform based on how much you plan to trade. Does it have a minimum number of transactions to qualify for a reduced rate? Does it offer a few transactions free? Do you pay a monthly fee or an inactivity fee? These are all things to consider.

Final Thoughts on Norbert’s Gambit

If you are an active investor and like the idea of saving a few hundred — or even a few thousand — dollars after exchanging CAD to USD, then Norbert’s Gambit is definitely something to consider. Frequently exchanging CAD to USD, and vice versa, can be expensive, especially when you’re dealing with a sizable amount of money. As long as the math works out in your favour, it might make financial sense to implement the Norbert’s Gambit strategy next time you’re converting foreign currencies.

Frequently Asked Questions

How long does it take to perform Norbert’s Gambit?

Norbert’s Gambit takes anywhere from 3 to 5 days to complete. That includes time to buy DRL.TO or DLR.U.TO shares, waiting for the shares to become accessible in your account, journalling your shares, and waiting for the funds to become available.

Can I complete Norbert’s Gambit in non-registered and registered accounts?

Yes, Norbert’s Gambit works in both non-registered and registered accounts, including margin, RRSP, and TFSA accounts.

Is Norbert’s Gambit legal?

Yes, Norbert’s Gambit is legal. All you’re doing is exchanging one set of shares in Canadian funds for the same shares that trade in US dollars. In fact, financial institutions are very familiar with this tactic. 

Is cashing out an investment for Norbert’s Gambit taxable income?

You have to be mindful of your capital gains and losses whenever you sell an investment. Consult the Canada Revenue Agency to know how to report your capital gains or capital losses. You should also factor the tax implication into your decision regarding Norbert’s Gambit.
Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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