Norbert’s Gambit: A detailed step-by-step guide

Have you ever heard of Norbert’s Gambit? This trick was first made popular by Norbert Schlenker as a way to convert CAD to USD and vice versa while minimizing currency exchange fees. The trick is incredibly handy for people who need to exchange huge amounts of US dollars. For example, you might want to start investing in US listed stocks, or you may be purchasing a home in the US. If you used one of the traditional ways to exchange money, you could end up paying hundreds, if not thousands, of dollars in fees. Obviously, no one wants to do this.

Admittedly, Norbert’s Gambit may sound a bit complicated if you’re a new investor, but it’s actually a very easy process as long as you have the right accounts set up. There’s even an ETF available now with the sole purpose of being used for Norbert’s Gambit, so it’s not like it’s some secret. Here’s how to perform Norbert’s Gambit.

What is Norbert’s Gambit?

Norbert’s Gambit is a way to exchange Canadian dollars and US dollars (or vice versa) without having to pay any foreign exchange fees. This is possible because there are exchange-traded funds and Canadian stocks that trade on both Canadian and U.S. exchanges. The only thing you would pay is any commission fees that your brokerage fees. 

This trick is available to both US and Canadian investors. It can be done in non-registered and registered account. 

How does Norbert’s Gambit work?

When people need to exchange Canadian dollars for US dollars, they usually need to pay an exchange fee of 1% – 4%. While this may not seem like a lot, it can be quite significant. For example, imagine someone selling a vacation home in the U.S. for the equivalent of $500,000 CAD. If they exchanged their money at a bank and get charged a 2.5% fee, that’s $12,500. With Norber’s Gambit, you can avoid fees completely by purchasing Canadian or US-listed ETFs that trade on both exchanges.

Since both ETFs trade on both exchanges, the only difference is the currency. You would basically buy the ETF on one exchange and then get it transferred (journaled) over to the other exchange. By doing this, you’re converting currencies at no cost (minus fees)

How do you use Norbert’s Gambit?

Experienced investors likely wont have many issues performing Norbert’s Gambit. Admittedly, the process may scare off novice investors, but it’s not that difficult. That said, it does require some setup.

• Open a discount brokerage account with CAD and USD trading accounts
• In your CAD account, buy ticker symbol DLR which trades in CAD
• After the order has settled (usually three days), call your brokerage and ask them to journal your DLR shares over to your USD account so they show up as DLR.U
• Sell your DLR.U shares
• You’ll now have USD in your USDtrading account
• Use the funds to buy US stocks or withdraw them in USD if you need it

You might be wondering how this all works. It’s actually a simple process when you think about it. DLR is Horizons U.S. Dollar Currency ETF which is available in both Canadian and US dollars. DLR.TO (sometimes referred to as DLR CA) is the CAD version (traded on the Toronto stock exchange), while DLR.U is the American version. When you journal shares over, all you’re doing is switching the currency. Converting from USD to CAD works in the same way, but you start with DLR.U in your USD trading account.

**With TD Direct Investing, you don’t need to wait to journal your shares over. You can call TD immediately after your purchase has completed. For a full brokerage fee of $43, they can immediately journal over your shares and sell them. This eliminates any currency fluctuations between the time you buy and sell your DLR shares.

Since you’re not technically buying and selling two different stocks on two different exchanges, you’re saving on the foreign exchange fees, which are typically 2.5%

At the time this article was published (April 1, 2022) DLR was trading at $12.60 CAD while DLR.U had a price of $10.08 USD. This spread is actually the difference in the current exchange rate. Since you’re just switching from one currency to another with the same product via a discount broker, you don’t have to pay the exchange fees that banks implement. That said, you do have to pay two trading commissions. Although some brokerages only charge you when you sell, so you might have to pay one fee.

How long does Norbert’s gambit take?

Generally speaking, it takes three days from the time you make your initial trade to complete Norbert’s gambit. Even if you journal things over right away, it’ll still take three days since that’s how long it takes for trades to settle. In some cases, it may take longer, but that’s rare.

Once your money is in your USD account, you can purchase US listed stocks. If your intention is to take the money out for a different purpose, then you would need to transfer your funds to a regular US dollar account first.

How much does Norbert’s gambit save?

How much does Norbert’s gambit saves really depends on how much you’re exchanging. For simplicity, we’ll use the DLR prices outlined above. We’ll also assume you’re buying 1,000 units of DLR since it’s a nice round number.

That works out to a cost of $12,600 CAD for the ETF, but you also need to factor in the $10 brokerage fee (or whatever your discount brokers charge). Your total cost would be $12,610. When you journal things over and sell you’d have $10,070 USD ($10,080 from the sale – $10 brokerage fee).

In this case, $12,610 CAD bought you $10,070 USD.

Now you need to compare that to the foreign exchange rates offered by your bank. I use TD so I decided to punch the numbers in there. On the same date I wrote this article, $12,610 CAD gets me $9,822.40 USD. That’s a difference of $247.60 USD or $299.82 CAD. Clearly, that’s pretty significant.

A better way to look at the savings is the percentage you save. The difference between Norbert’s gambit and TD is about 2.46%. In other words, at the time, TD charged a 2.46% currency conversion fee. Now let’s say you need to exchange $300,000 CAD for USD because you’re buying a home. You would save $7,380 CAD by using Norbert’s gambit. Using Norbert’s gambit is the cheapest way to exchange CAD for USD. The “trouble” you would have to go through to set up accounts would be totally worth it.

Where can I perform Norbert’s gambit?

To perform Norbert’s gambit, you’ll need a discount brokerage account such as:

• Questrade
• TD Direct Investing
• CIBC Investor’s Edge
• RBC Direct Investing
• BMO Investorline
• Scotia iTRADE

As for the account types, they can be performed in the following:

• Non registered trading account
• Registered Retirement Savings Plan (RRSP)
• Tax-Free Savings Account (TFSA)
• Margin account

Keep in mind that not every brokerage allows you to perform Norbert’s gambit in every account. Also, even if you could do it in your TFSA, you’d pay US taxes on any dividends and interest earned from US stocks. Most people only do Norbert’s gambit in their trading and RRSP accounts.

It’s also worth mentioning that Norbert’s Gambit can be performed with any stock that’s interlisted. For example, CNR trades on the TSX, but CNI is on the NYSE. You could technically use that to do the gambit, but there would be significantly more volatility compared to DLR.

Don’t try to overthink things. Norbert’s gambit should be performed with a specific purpose in mind which is the best way to convert CAD to USD.

Norberts gambit Questrade

So far, in this article, I’ve made the assumption that you know how to make trades in a discount brokerage account. However, I recognize that not everyone has the same experience, so you may need a little extra hand-holding. Let’s say you want to exchange $10,000 in CAD for USD. Using the same rates outlined so far, here are step-by-step instructions to perform Norbert’s gambit in your Questrade account.

• Go to your CAD account and click order entry
• Type in DLR (choose DLR CA) and find the ask price (I’m assuming $12.60 here)
• Figure out how many shares you can buy by taking your amount, and dividing it by the ask price
• $10,000 / $12.60 = 793 shares (always round down)
• Unde Quantity, enter 793
• Under Price type, select limit
• Under limit price, enter $12.60
• Under Good ‘til, select day
• Click buy (note that Questrade does not charge a fee to buy ETFs)
• Assuming everything was done correctly, your order should fill instantly
• When your trade settles after roughly three business days, call Questrade and have them journal over your shares
• When you see DLR.U in your US account, sell your shares
• You’ll now have $7,983.49 USD (after factoring in the $9.95 commission in your account)

Although I’ve explained Norbert’s gambit in Questrade for you here, it’s really no different from any other discount brokerage. For example, some brokerages might have limit as limit order or limit price as bid price. It’s all sort of the same thing.

The only real difference is the commissions which are typically capped at $10 anyways. Sure, Questrade doesn’t charge you a fee when buying ETFs, but the odds are you’ll only do Norbert’s gambit once or twice a year. I don’t think it matters who you do the gambit with.

Norbert’s gambit USD to CAD

So far I’ve talked about converting Canadian dollars to US dollars, but what if you need to do things the other way? Is Norbert’s gambit the best way to convert USD to CAD? Yup! The process is exactly the same, but you’re just starting things in your US account, so it would look something like this:

• Deposit/transfer USD into your US trading account
• Select DLR.U as the ETF you want to buy
• Choose your quantity, price type and Good ‘til
• Click buy
• Wait three days for your trade to settle and call your brokerage to journal the shares over to your CAD account
• Use or withdraw your Canadian dollars

You may not think that you’ll need to exchange USD to CAD, but it happens more than you realize. Many traders will want to convert USD to CAD when they want to cash out any gains. There are also some people who have sold homes in the US and are looking to bring the funds over to Canada.

Here’s another practical example. As a freelancer, I earn about $40,000 US a year. If I were to just accept the rates from my bank, I’d be losing roughly $1,150 CAD a year to fees.

If you’re changing a few hundred dollars, the exchange rate probably won’t matter much. However, if you have access to USD on a regular basis, you’ll want to minimize your fees when converting to Canadians.

When should Norbert’s Gambit be avoided?

Norbert’s Gambit should only be used if you’re saving more than what you’re paying in fees. If you’re using a brokerage that only charges $10 for selling shares, then the break-even point is about $800. However, if you need to pay $10 for buying and selling, your break-even point is about $1,600.

Since Norbert’s Gambit requires some account set up, it might not be worth it if you need to pay a monthly or yearly fee to keep those accounts active. That said, depending on how much you’re exchanging, opening accounts and then closing them later could be worth it.

Norbert’s Gambit also isn’t ideal for anyone who needs the money immediately. It does take at least three days to complete everything, so it’s not a good choice if you’re looking to exchange money fast.

Is Norbert’s gambit legal?

Some people wonder, is Norbert’s gambit legal? It’s an honest question since you’re essentially circumventing the exchange fees that your bank imposes. Here’s the thing, there’s nothing illegal about the trick. You’re literally swapping one item that trades in CAD for an identical version that happens to trade in USD.

Banks are well aware of Norbert’s gambit and they’re not making any attempt to block it. You’re not doing anything that breaks the terms and conditions of your brokerage, so why would they care? Financial institutions are more than happy to collect the exchange fees from everyone who isn’t aware of how Norbert’s gambit works.

What is DLR ETF?

Horizons US Dollar Currency ETF, or DLR on the ticker, is an ETF created by Horizons for the sole purpose of executing Norbert’s Gambit. There’s literally no other reason to hold the ETF. Why would Horizons do this? Well, they make a small commission on the spread with every trade. DLR itself is an interlisted ETF which means it trades in Canadian dollars as DLR and in US dollars as DLR.U. The price difference between the two is nearly on par with the exchange rate between Canada and the United States.

Using the rates from above, you could take the Canadian price and divide it by the U.S. price to figure out the exchange rate. In this case, it’s 12.60/10.08 which gives you an exchange of 1.25. Currently, Google is showing the USD to CAD exchange rate at 1.26, so DLR is nearly on par as advertised.

What does it mean to journal shares?

Journaling shares simply refers to moving shares from one stock exchange to another. This applies specifically to any interlisted company. Not every discount brokerage supports this and the ones that do require you have both USD and CAD accounts.

Norbert’s gambit alternatives

One thing that many other Norbert’s gambit guides don’t talk about is the fluctuation with the actual exchange rate from the time you buy to the time you sell. If the Canadian dollar increases in value while you’re waiting for your trade to settle, you’d get more USD in the end. On the flip side of things, if the Canadian dollar drops in value, you get less USD. Any gains or losses would be a taxable event.

You probably shouldn’t worry too much about the exchange fluctuation as there’s not much you can do about it. That said, you could use an online exchange company such as OFX, since they’ll be able to give you a quote right away. With that number in hand, you’ll know exactly how much the exchange will cost you.

Another option is Wise (formerly known as TransferWise). Wise is an interesting option as it allows you to set up virtual accounts in most countries.

Now, if you’re just looking to save money on small transactions made in US dollars, you might be better off just using one of the best credit cards with no foreign transaction fees. This won’t give you any physical US dollars, but you’d be saving on the exchange.

Final thoughts

Norbert’s gambit may sound like a complicated procedure, but if you’ve ever bought stocks or ETFs online, it’s really no different. Even if you’re not an experienced investor, the gambit is easy to perform once you have your accounts set up. The hassle to get everything up and running is worth it if you need to exchange a huge amount of Canadian dollars for US dollars or vice versa.