Wednesday, September 4, 2019

Currency Exchange at BMO InvestorLine

Every so often I’m forced to change the way I convert large sums between Canadian and U.S. dollars at BMO InvestorLine. The basic method I use stays the same, but some of the details change as InvestorLine responds differently. The method I use saves a lot of money compared to using the InvestorLine foreign exchange system.

Banks and brokerages hide fees in their currency exchange rates. To see the extra charge, start by taking a sum in Canadian dollars, say C$10,000, and finding out how many U.S. dollars you can get. Then see what this U.S. amount would get going back to Canadian dollars.

Many people might guess they’d get their original C$10,000 back, but they’d be wrong. In a recent test I did at BMO InvestorLine, I’d get back C$9754, for a loss of C$246 in two currency exchanges. That’s $123 per exchange. Starting with C$100,000, the cost worked out to $464 per exchange. I use a method called “Norbert’s Gambit” to reduce these costs to about C$25 and C$50, respectively.

Norbert’s Gambit begins with finding a stock that trades with low spread in both Canada and the U.S. One such stock is Royal Bank (ticker: RY in both countries). To go from Canadian dollars to U.S. dollars, I start by buying RY in Canada with the Canadian dollars. Then I sell the RY in the U.S. to get U.S. dollars. Two days later when the trades settle, I’ve completed my currency exchange. To go from U.S. dollars to Canadian dollars, I do the reverse: buy RY in the U.S. and then sell RY in Canada.

As always, there are details that can trip you up. One detail is that even though I never sell stock I don’t own, InvestorLine doesn’t record it this way. If I’m going from Canadian to U.S. dollars, I end up with a positive number of RY shares in the Canadian side of my account and a negative number of RY shares in the U.S. side.

InvestorLine automatically “flattens” my account to get rid of the positive and negative numbers of RY shares, but never on settlement day.  They usually do it on either trading day or one business day after settlement day.  Then they charge me interest on the phantom short position in my account. I’ve done this a dozen or more times in RRSPs and cash accounts, and I get charged 21% annualized for the day or two (or 3 or 4 days if it runs over a weekend). For a C$100,000 exchange, this is about US$40 interest per day.

InvestorLine has reversed this interest charge every time after I ask them to, but having to ask is annoying.  Further, the people I speak to never seem to understand the issue.  Sometimes they reverse the charge as a “goodwill” gesture, which is a funny description for returning money that shouldn't have been taken in the first place.

Some InvestorLine customers report that they don’t see these interest charges. I can think of three explanations. One is that InvestorLine doesn’t charge less than $5 interest per month in margin and cash accounts, and smaller exchanges might not generate more than $5 interest. A second possibility is that these people manage to get InvestorLine to flatten their accounts on settlement day, although I can’t get them to do this anymore. The third possible explanation is that because interest doesn’t appear until the 21st of the month, some people just might not notice the charge.

I used to send messages to InvestorLine on their internal message system asking them to flatten my account on settlement day, but this never worked. Calling them on settlement day and asking them to flatten my account used to work, but doesn’t any longer. So, I’m reduced to waiting until they charge me interest and asking them to reverse it. This has worked every time so far.

February 2022 update: For the first time in dozens of Norbert Gambit currency exchanges, BMO InvestorLine didn't charge me any interest.  Hopefully, this is a sign that their systems are now fixed and they won't charge any more interest in the future.

Below is the detailed set of steps I follow going from a Canadian to U.S. dollars. Just substitute “U.S.” for “Canada” and vice-versa for how I convert currency in the other direction. I offer no guarantee that my method will work for you, because your accounts may be set up differently from mine and InvestorLine changes their systems periodically.

WARNING: You might want to avoid trading on days with high stock price volatility.

1. Check that the next two trading days are the same in the U.S. and Canada. It takes two days for trades to settle. If a holiday closes stock markets in only one country during that time, my trades would settle on different days. I don’t proceed further unless all settlement will happen on the same day. If the settlement date is different in the U.S. and Canada, this can cause a short position and lead to an interest charge that I can’t get reversed.

2. Buy RY stock in Canada. If the Canadian dollars are coming from the sale of some Canadian ETF, I make that trade immediately before buying RY stock; there’s no need to wait for the first trade to settle. The amount of RY stock I buy doesn’t have to exactly match the proceeds from the first sale. I can buy more RY if my account was already holding some Canadian dollars, or I can buy less RY if I want my account to be left with some Canadian dollars. I make sure to account for trading commissions because the cash level InvestorLine shows doesn’t deduct commissions until two days later when the trades settle. I make sure the trades in step 2 all take place on a Canadian exchange and in Canadian dollars.

3. Sell RY stock in the U.S. This should be the same number of shares of RY as I purchased in step 2. If I’m planning to use the resulting U.S. dollars to buy a U.S.-listed ETF, I make that trade immediately after selling the RY stock; there’s no need to wait until the RY sale settles. Once again, I make sure to account for trading commissions. I make sure the trades in step 3 all take place on a U.S. exchange and in U.S. dollars. Note that I place all the trades in steps 2 and 3 on the same day, preferably in a span of a few minutes.

4. Set a Calendar reminder for 2 business days after the 21st of the month to check if I was charged interest. So far, I’ve been charged interest for at least one business day every time, even though I have no short position. InvestorLine has one-day delays between certain actions and when they take effect or become visible in my account. This appears to be the explanation for the interest charge in some cases. If you make the trades within a few days of the 21st of the month, the interest charge may not appear until a month later. I’ve had InvestorLine representatives insist that their system automatically flattens accounts without false interest charges, but I’ve been charged interest more than a dozen times.

5. If interest was charged for the so-called short position, call and ask that the spurious interest charge be removed. I get a different nonsensical response every time I do this, but they have always reversed the charge.

6. If interest was charged, set another calendar reminder 5 business days later to confirm that the interest charge was removed. The interest charge has always been removed for me, but in theory, I might have to do another round of calling and checking whether the problem is fixed.

Because I’ve included so much detail, this may look like a lot of work, but it isn’t too bad at all. It’s definitely worth it to me to save hundreds of dollars.


  1. Similar concept, but I use DLR-T and DLR.U-T to convert between CDN$ and US$

    1. @DaveG: Back when I started using Norbert's Gambit for currency exchange, I used DLR and DLR.U, but I wasn't happy with the wide spreads. At the price of potential short-term swings in RY shares, I save money with RY's tighter spreads.

    2. I've always use DLR/DLR.U with BMOIL, but I call them every time, and they don't charge me for any "loan" interest. I simply pay the regular commission of $9.95 each way. So whatever the amount I want to convert from USD-CAD (and vice-versa), I never pay more than $19.90.

    3. @Unknown: In addition to the two commissions, you're paying an implicit cost in the form of spreads. When you buy DLR, you pay the bid price, but when you sell DLR.U, you get the ask price. You can estimate the spread cost of each trade by taking half the difference between bid and ask price.

      You say that you don't pay interest. Perhaps that's because you're making small enough trades in a cash or margin account that the interest doesn't reach the $5 threshold to be charged. What type of account are you using for currency exchanges?

      Another possible explanation is that Investorline specifically checks for trades with DLR/DLR.U to eliminate their usual one day of interest charge.

      A third possible explanation is that you just didn't notice the interest charge that showed up weeks later. Have you gone back to check you transaction history after a month goes by to see if any interest showed up?

  2. Have you tried to call them to do the journalling on the same day that you make the trades? This is what I was told by a BMOIL rep the last time I asked that shares be moved from the CDN to US side of my account:
    "Please note Journal can be done on same day of trade before market close or second day after settlement".

    1. @Anonymous: That has worked in the past. But one tiem they did the journaling a day early, which caused an interest charge because shares were moved the day before the trade settled to put the shares in my account.

      In recent Norbert Gambits, I've been told that they don't want to interfere with the automatic journaling process because it might mess something up.

      My recent experience has been that trying to prevent a false interest charge by calling them just doesn't work. Your mileage may vary.

  3. Hi Michael, thanks for the great article.
    I currently use BMO investorline as well, and was wondering if there is a current general minimum CAD exchange amount that would make the hassle of exchanging to USD using Gambit's method worth it (vs. than just going through the standard currency exchange)?

    1. @Anonymous: I've found the minimum exchange to make using the gambit worthwhile is around $3000, but this depends on the way you do it. If you use a different interlisted stock than RY, the costs change. Even if you do use RY, it's price can move against you between trades. Of course, RY price could also move for you between trades as well.