In the past I’ve used the exchange-traded fund DLR to make cheap currency exchanges at InvestorLine. I decided to try Royal Bank stock (ticker: RY in both Canada and the U.S.) because it has a smaller spread to save me more money and it’s easier to trade.
For those not familiar with the Norbert Gambit for saving money on currency exchanges, please take a look at Canadian Couch Potato’s excellent guide. The lowest risk method of doing the Norbert Gambit is to using the exchange-traded fund DLR which just holds U.S. dollars and can be bought and sold in either Canadian or U.S. dollars. Unfortunately, you can’t buy or sell the U.S. dollar version online at InvestorLine; you have to call an agent, which is a pain. So, I decided to try using Royal Bank stock instead.
With my new savings always in Canadian dollars, my portfolio allocation tends to get out of balance by having too much in Canadian ETFs. I needed to sell about $60,000 worth of Canadian ETFs, change currency to U.S. dollars, and buy U.S. ETFs. The problem is that the currency exchange rates offered by InvestorLine have a large built-in spread that can be expensive.
Here are the steps I took:
1. Sold Canadian ETFs (settled in Canadian dollars).
2. Bought 830 RY on a Canadian exchange (settled in Canadian dollars).
3. Sold 830 RY on a U.S. exchange (settled in U.S. dollars).
4. Bought U.S. ETFs (settled in U.S. dollars).
(I had to be careful to get the Canadian/U.S. exchange and the settlement in Canadian/U.S. dollars right in each case.)
I completed all steps in just a few minutes without having to call InvestorLine. If I had used DLR, I would have had to have called InvestorLine for step 3. Using RY stock is a little riskier because of the possibility that its price might change between steps 2 and 3. DLR doesn’t have this risk because the investments inside DLR are just U.S. dollars.
I did all this on a Tuesday. Immediately after making the trades, my account showed that I had 830 RY on the Canadian side of my account, and -830 RY on the U.S. side. In reality, it takes 3 days for trades to settle. In my case settlement was on Friday. It wasn’t until another two business days after Friday that the +830 RY and the -830 RY were wiped out. Fortunately, this cancellation of the offsetting shares of Royal Bank stock was automatic; I didn’t have to call an agent.
Update: See here for a description of an interest charge I was hit with weeks later that I discovered and got reversed.
This trick was well worth the small extra effort because I saved $491 compared to just using InvestorLine’s currency exchange. I’d be interested to hear readers’ experiences with the Norbert Gambit at InvestorLine or other discount brokers.