Currency exchange fees can be a significant expense for individuals or investors who need to convert Canadian dollars (CAD) into U.S. dollars (USD) or vice versa. However, there is a way to bypass these high conversion fees entirely using a method called Norbert’s Gambit. This strategy can save you a considerable amount of money if you frequently trade between CAD and USD.
In this article, we will provide an in-depth guide to understanding Norbert’s Gambit, how it works, when it’s worth it, and what to watch out for.
What Is Norbert’s Gambit?
Norbert’s Gambit is a currency conversion strategy used to exchange Canadian dollars (CAD) and U.S. dollars (USD) at almost no cost, avoiding hefty conversion fees charged by financial institutions. This method leverages inter-listed stocks, which are listed on both Canadian and U.S. stock exchanges. By buying and selling these stocks in different currencies, you effectively exchange CAD for USD (or vice versa) at the mid-market rate with minimal fees.
How Does Norbert’s Gambit Work?
Norbert’s Gambit works by exploiting the dual-listing of certain stocks on both the Toronto Stock Exchange (TSX) and U.S. exchanges, like the New York Stock Exchange (NYSE). The key steps to understanding how it works are outlined below:
| Step | Description | Example |
|---|---|---|
| 1. Buy Shares | Buy shares of an inter-listed stock (such as DLR or RBC) in your Canadian-dollar (CAD) trading account. | Purchase shares of DLR.TO using CAD. |
| 2. Journal Shares | Request your broker to “journal” the shares from the Canadian-listed version to the U.S.-listed version of the stock. This step usually takes 1-2 business days. | Journal DLR.TO to DLR.U.TO. |
| 3. Sell Shares | Sell the U.S.-listed shares in your USD trading account. You will now have USD cash. | Sell DLR.U.TO to get USD in your account. |
Through these steps, you effectively convert CAD into USD (or vice versa) with minimal fees, often avoiding the typical 2-3% currency exchange fee charged by most brokers.
How to Do Norbert’s Gambit: Step-by-Step Guide
Follow this step-by-step process to perform Norbert’s Gambit:
- Open a Brokerage Account: Ensure you have a brokerage account that supports both CAD and USD. Popular options include Questrade, Interactive Brokers, or Wealthsimple Trade.
- Choose an Interlisted Stock: Look for an interlisted stock like Horizons US Dollar Currency ETF (DLR), Royal Bank of Canada (RBC), or Enbridge Inc. (ENB). For beginners, DLR is the easiest option as it is designed specifically for Norbert’s Gambit.
- Buy the Stock in CAD: In your CAD trading account, purchase the stock. For example, if you’re using DLR, you would buy DLR.TO.
- Journal the Shares to USD: Contact your broker and request to journal the shares from the Canadian side (DLR.TO) to the U.S. side (DLR.U.TO). This process might take a few business days.
- Sell the Stock in USD: Once your shares are journaled to the U.S. side, sell the U.S. version of the stock (DLR.U.TO) in your USD trading account.
- Transfer or Use the Funds: Now that you have USD in your account, you can transfer it to a U.S. bank or use it to trade U.S.-listed stocks.
Example
Let’s say you want to convert CAD 10,000 into USD using Norbert’s Gambit. You would buy DLR.TO with CAD 10,000, journal it to DLR.U.TO, and sell the shares for USD, receiving approximately USD 7,800 (assuming a 1.28 CAD/USD exchange rate). If you were to use a bank, you might only get USD 7,656 after fees, meaning Norbert’s Gambit saves you about USD 144.
How Long Does Norbert’s Gambit Take?
The process can take anywhere from 2 to 5 business days depending on your broker. Journaling shares usually takes 1-2 business days, and the settlement of trades can add another 2-3 business days.
Estimated Timeline:
| Step | Time Required |
|---|---|
| Buy shares | Instant |
| Journal shares | 1-2 business days |
| Sell shares | 2 business days |
| Total time | 3-5 business days |
When Is Norbert’s Gambit Worth It?
Norbert’s Gambit is worth it when you need to exchange large amounts of money (typically over CAD 3,000). The savings on exchange fees increase as the amount you convert grows.
For small amounts (under CAD 1,000), the potential savings might not justify the effort since there are flat fees involved for buying and selling shares, which could erode the benefit. However, for larger sums, the savings are substantial.
Savings Example:
| Amount to Convert | Bank Fees (2.5%) | Norbert’s Gambit Fees | Savings |
|---|---|---|---|
| CAD 1,000 | $25 | $10 | $15 |
| CAD 5,000 | $125 | $10 | $115 |
| CAD 10,000 | $250 | $10 | $240 |
How Much Does Norbert’s Gambit Save?
By avoiding currency exchange fees, Norbert’s Gambit can save you between 1.5% and 3% on your conversion. Here’s a quick breakdown of potential savings:
| Amount Converted | Potential Savings |
|---|---|
| CAD 1,000 | USD 15-30 |
| CAD 5,000 | USD 75-150 |
| CAD 10,000 | USD 150-300 |
The more money you convert, the more you save.
When Should I Avoid Using Norbert’s Gambit?
There are scenarios when Norbert’s Gambit may not be the best option:
- Small Amounts: For conversions less than CAD 1,000, the transaction costs (commissions, fees) might outweigh the benefits.
- Urgency: If you need the currency immediately, the 2-5 day processing time may not be convenient.
- Unavailable Broker Services: Not all brokers allow journaling of shares. Verify that your broker supports this before starting the process.
Can I Avoid Currency Conversion Fees Without Norbert’s Gambit?
Yes, there are other ways to avoid hefty conversion fees without Norbert’s Gambit, including:
- Multi-Currency Bank Accounts: Some banks offer accounts that allow you to hold and exchange multiple currencies, like HSBC Global Money Account or EQ Bank’s USD Account.
- Forex Platforms: Services like Wise (formerly TransferWise) and Revolut offer lower exchange fees compared to traditional banks.
- USD Credit Cards: Using a USD credit card for transactions in the U.S. can help avoid conversion fees.
Watch Out for Scams
As with any financial transaction, there are potential risks. Always work with a reputable broker, and avoid any unsolicited offers to exchange money or handle your transactions on your behalf. Be aware of hidden fees, delayed transactions, or brokers that do not offer transparent pricing.
Frequently Asked Questions (FAQs)
Is Norbert’s Gambit Legal?
Yes, Norbert’s Gambit is a completely legal and legitimate method of converting currency.
Which Stocks Can I Use for Norbert’s Gambit?
The most popular stock for Norbert’s Gambit is DLR/DLR.U, but you can use any inter-listed stock such as Royal Bank of Canada (RY) or Enbridge Inc. (ENB).
Do All Brokers Allow Norbert’s Gambit?
Not all brokers support journaling shares. Before you begin, confirm that your broker offers this service.
How Much Can I Save Using Norbert’s Gambit?
Depending on the amount, you can save between 1.5% and 3% compared to traditional currency exchanges.
How Long Does It Take to Complete Norbert’s Gambit?
The process typically takes 3-5 business days.
Conclusion
Norbert’s Gambit is an effective way to avoid the high currency exchange fees typically charged by banks and brokers. While it may require a bit of extra effort and patience, the potential savings, especially for large sums of money, are substantial. Before proceeding, ensure you understand the process, work with a reliable broker, and factor in any costs related to journaling shares or brokerage commissions.
By using Norbert’s Gambit strategically, you can significantly reduce the cost of converting between CAD and USD, making it a valuable tool for frequent cross-border transactions or investments. Read more here
