The biggest ripoffs, in the world, ranked:
5. Movie theatre popcorn (whatever, still buying it)
4. Paying for data or text messages when you’re in Murica
2. Scented candles (come on SHEEPLE. Lights exist)
1. Converting Canadian Dollars to U.S. Dollars
The last one is what really gets me. To exchange Canadian Dollars to U.S. Dollars, guys like me have to go down to the bank, feign being interested in conversation with the lady working there, and then pay a 1.5% fee for the privilege of getting money that looks slightly different? It’s a terrific business and I want in, dammit.
Oh, right. The whole Canadian housing thing isn’t going to end well for these banks, is it?
In your brokerage account, it’s an even sweeter gig. Nobody actually counts out cash for you, it’s just a transaction in a computer somewhere. Most of the time, it barely registers to you that it’s happened. You’ll buy a U.S. stock in your RRSP or TFSA, and right before you click ‘buy’ you’ll get a little note letting you know a conversion to U.S. funds is taking place, and you’ll pay for it.
Fortunately, there are ways around this. Most every brokerage has the ability to set you up margin accounts in both Canadian and U.S. funds, which is nice. Plus, it makes tax time a whole lot easier if you have capital gains. There are even brokerages that will allow you to have U.S. Dollar RRSP accounts. These types of accounts do minimize the amount of exchanging Canadian Dollars to U.S. Dollars you’ll end up doing.
But there’s still the matter of getting U.S. Dollars in the first place. You COULD mail a briefcase full of $20s to your broker, but apparently they won’t accept that. Jerks.
Instead, let me tell you about Norbert’s Gambit, a cheap and easy way to exchange Canadian Dollars for U.S. Dollars. We’ll use Qtrade as an example, because that happens to be the online broker who tolerates my shenanigans.
First, what’s Norbert’s Gambit?
I wish I did clever enough stuff to have a gambit named after me. Can we call setting up an unfunny finance blog Nelson’s Gambit? Hello?
Where’d everybody go?
Norbert’s Gambit is pretty easy. All you do is buy a stock/ETF in Canadian funds, transfer said stock to your U.S. account, and then sell it in U.S. funds. That way you’re only charged the commission for the two trades as a fee. For Qtrade, that comes to $17.50, which means you’re ahead of the game if you’re converting more than $1,521.
But there’s an issue with picking any old stock. What happens if the stock price moves against you? Sure, you can immediately buy something in Canadian and then sell it in U.S. a few minutes later, but for someone who doesn’t trade much, that’s a pretty easy way to get a phone call from your broker.
So instead, let’s look at an easy, no risk way of doing it, using a U.S. Dollar ETF.
DLR (and DLR.U) is the same ETF by Horizons. One is priced in Canadian Dollars, while the other is priced in U.S. Dollars. Both trade on the TSX with a decent enough volume for guys like you and me.
Here’s what you do. In Qtrade, go ahead and buy yourself some DLR, not DLR.U.
After the trade has settled (this will take three business days), you’re ready to transfer the stock from your Canadian margin account to your U.S. margin account. Some brokerages force you to phone in, but I wanted to avoid this since I hate all forms of human contact.
With Qtrade, it’s really easy. You go to ‘My accounts’ and then to ‘Service Center’. From there, you’re going to scroll down to ‘Manage my funds’, and then click ‘Transfer Securities.’ You’ll end up with a screen like this, which I would hope you can handle on your own.
Give them a day or so to do the transfer, and it’ll show up in your U.S. account. Then all you need to do is sell DLR.U, and presto! You’ll have U.S. Dollars.
A few notes:
1. You’ll likely want to use limit orders when you buy. I didn’t, because I was happy to pay the ask price and I saw there were plenty of shares available from that particular seller.
2. I “lost” money because the Canadian Dollar rallied against the U.S. buck in the time it took my trade to settle. Since I eventually expect that money to eventually become Canadian again, I’m not going to sweat it. Besides, it’s a small tax benefit I can use next year, which is helpful.
3. You should, in theory, be able to buy DLR and then immediately sell DLR.U for a quicker exchange, and it should all sort itself out in the end. I don’t know for sure though because I haven’t tried it.
4. I saved a little less than $100 on the exchange, assuming a 1.5% exchange rate. Not bad! You’ll do better if you exchange more money, since Qtrade has flat $8.75 trades. The commission stays the same as the amount being exchanged goes up.
And that’s about it. An easy (and cheap) way to exchange Canadian Dollars to U.S. Dollars using Qtrade. If anyone has experience doing it with other platforms, please comment so we can have multiple brokerages in one spot.