In Canada, Investing, Money, USA

Cheap USD Conversion: How to convert Canadian Dollars ($CAD) into U.S. American Dollars ($USD) using Norbert’s Gambit

Who/What is Norbert’s Gambit?

“Norbert’s Gambit” is named for Norbert Schlenker who developed this method for his own personal use to be able to take his Canadian Dollars and convert them into American Dollars to buy stocks, and not have to pay massive conversion fees.

This has something that has always held Canadians back from doing more investing in U.S. stocks, simply because of the high cost of conversion up to 2%!! If you’ve got $20K to invest, 2% of that is $400, and then you’re going to get slammed with a U.S. withholding tax on top of all of it.. you’d need a solid return or more just to break even, and then make a profit.

How does it work?

It uses an exchange-traded fund (ETF) called Horizons US Dollar Currency ETF that tracks the U.S. dollar against the Canadian one.

The idea is that since it is an ETF that trades in DUAL CURRENCY (USD and CAD), you can put in Canadian dollars, buy the ETF, have them journal it over to American dollars, and then withdraw the money in American dollars as cash into your account to buy stocks with.

The price of this fund fluctuates as much as the currency conversion does from day to day, so within $0.01 – $0.03 cents of each other. It’s pretty stable, but again it is an ETF and never say never.

Wait, what’s my conversion rate to $USD?

It’s set at the time of the DLR purchase. When you put in $CAD and buy the ETF, the $USD conversion rate is set in that moment you purchased it.


If you do it the other way. from USD to CAD, then it will be at the time you sell your DLR.TO or (CAD$) shares)

Seems too easy, what’s the catch?

There are two.

1. ECN Fees may apply unless you’re careful

You can get hit with some big ECN fees (Electronic Communication Network) if you buy the DLR ETF at market value (it gets filled immediately), or set the limit price to the Ask Value.

You can avoid these ECN fees if you simply look at the Ask Value, and set it to be a penny or two below that.

You also want to buy in multiples of ONE HUNDRED to avoid this fee. If you buy 120 shares, you’ll get ECN-charged on the 20 shares. Definitely buy 100, or 200, or 300 instead.

2. Your money is tied up for 5-ish business days

So you have to be cool with leaving that money in there, converting for 5 business days and consider the opportunity cost of doing so while your funds are locked in (e.g. like a U.S. stock shooting up 1000% in the time your money is locked).

I’d suggest doing this in ADVANCE of any plan of buying any U.S. stocks, not when you want to do it immediately.

You may also be waiting (depending on how much you are converting) to flip it at break even or a small profit (so far, I am flipping about $20K and it was ranging from an $8 loss on the fund to a $14 profit… really small peanuts compared to what you’d pay for a real currency conversion which is $400 (2% on $20K)).

Okay, what about USD to CAD?

If you want to convert from $USD to $CAD, you can do the opposite of this method. Remember that the currency rate going from USD to CAD is locked in AT THE TIME YOU SELL DLR.TO not when you buy DLR.U.TO (in $USD)

When should I not bother with Norbert’s Gambit?

This only makes sense if you are converting more than $500 CAD, because otherwise, just pay the currency fee, because the cost is negligible.

Why should I even do this?

If you want to buy $USD stocks and not pay currency conversion.

Or if you want to buy $USD U.S.-listed ETFs or stocks, and to hold it in your RRSP (Registered Retirement Savings Plan) account to avoid U.S. withholding taxes.

OK, let’s do this! How?

Like so:

Et voilà.

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Sherry of Save. Spend. Splurge.

Am my own Sugar Daddy. Am a millionaire at 36 after getting out of $60K of student debt in 18 months, a little over a decade earlier, using I have worked 50% of my career (taking 1-2 year breaks), and quadrupled my income within 2 years of graduating, going from $65K to $260K with an average lifetime savings rate of 50%. I have 11 side incomes that are on track in 2020 to make me $50K - $75K. I could retire today if I wanted, but love my work-life balance as a freelancing consultant in STEM (Science, Technology, Engineering, Math). I am all about balance - between time and money, and also enjoying my money. I also post daily on Instagram @saverspender.

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