Appearance
Norbert’s Gambit (CAD ↔ USD Conversion Strategy)
Norbert’s Gambit (journaling dual-listed shares) is a process Canadian investors use to convert larger amounts between USD ↔ CAD while avoiding the wide retail FX spreads (often 1.5–2.5%) charged by banks and many brokerages.
Instead of paying that spread, you temporarily hold a dual‑listed ETF or stock (e.g., DLR/DLR.U, BNS, RY) and “journal” the position from one currency side of your brokerage account to the other, then sell in the target currency—achieving a rate close to the true interbank FX price.
Reference overview video: Norbert’s Gambit Explained
Embedded for convenience. Video hosted on YouTube.
1. Core Idea
Retail FX conversions add hidden cost (spread). By using a dual‑listed security that trades actively in both CAD and USD you synthetically convert currencies through two equity trades + a journal instruction.
2. Step-by-Step
USD → CAD
- Buy dual‑listed symbol in USD account (e.g., DLR.U or NYSE-listed BNS).
- Instruct broker to journal shares to CAD side (sometimes automatic; sometimes via secure message).
- Sell the Canadian-listed line (e.g., DLR or TSX:BNS) for CAD cash.
CAD → USD
- Buy dual‑listed symbol in CAD (e.g., DLR or TSX:BNS).
- Journal to USD side.
- Sell the U.S.-listed shares (DLR.U or NYSE:BNS) for USD.
Result: Functional FX conversion near spot with only commissions + minor spread.
3. Why Costs Are Lower
| Retail Method | Typical Cost | Notes |
|---|---|---|
| Direct FX at Bank/Broker | 1.5–2.5% spread | Hidden in quoted rate |
| Norbert’s Gambit (liquid dual‑listed) | ~0.05–0.15% (commissions + bid/ask) | Depends on liquidity + trade size |
| FX-Optimized Broker (IBKR) | ~0.002% explicit fee | Separate path – still useful for smaller amounts |
4. Common Instruments
| Pair | CAD Ticker | USD Ticker | Notes |
|---|---|---|---|
| Horizons Currency ETF | DLR | DLR.U | Purpose-built for Gambit; relatively tight spread |
| Bank of Nova Scotia | BNS (TSX) | BNS (NYSE) | Large cap, liquid; equity price movement risk higher than DLR |
| Royal Bank | RY (TSX) | RY (NYSE) | Similar profile to BNS |
5. Key Risks & Frictions
- Price Movement: Equity/ETF price can move during journaling delay (especially individual bank stocks).
- Settlement Policies: Some brokers require settlement before sale (adds market exposure). Others allow immediate sale of the journaled line.
- Instruction Delay: Manual service ticket can introduce hours or overnight delay.
- Dividend Timing: Holding across ex‑dividend date could create unintended FX/tax consequences.
- Liquidity / Spread: Wide spreads reduce benefit—use limit orders when sensible.
6. Broker Variability (Illustrative)
| Broker | Same-Day Journal? | Notes |
|---|---|---|
| Questrade | Yes (DLR/DLR.U often instant) | Popular for retail Gambits |
| RBC DI | Usually requires message | Timing dependent on desk |
| IBKR | Direct FX often cheaper; Gambit less necessary | Offers spot-like FX conversion |
7. When It Makes Sense
| Transfer Size | Approach |
|---|---|
| < CAD 1,000 | Simplicity may trump small savings—consider direct FX |
| 1,000–10,000 | Gambit with DLR/DLR.U often efficient |
| > 10,000 | Gambit savings accumulate; consider execution timing and liquidity |
8. Quick Execution Checklist
- Confirm dual‑listed pair liquidity (check bid/ask + volume).
- Place buy order (limit if spread > a few ticks).
- Initiate journal request (or wait if automatic).
- Verify shares appear in opposite currency sub‑account.
- Sell promptly; confirm proceeds currency.
- Record effective rate vs spot for tracking.
9. Effective Rate Tracking (Example)
| Step | Value |
|---|---|
| USD Spent | 5,000.00 |
| CAD Received | 6,800.00 |
| Implied Rate | 1.36 |
| Spot at Time | 1.3605 |
| Slippage | 0.0005 (~0.04%) |
10. When Not to Use
- Tiny transfers where commissions overwhelm benefit.
- Ultra time-sensitive needs (journal delay risk unacceptable).
- If broker offers near-spot FX cheaply (IBKR) and simplicity preferred.
11. Summary
Norbert’s Gambit is a tactical tool: two trades + a journal to significantly reduce frictional FX costs for larger CAD/USD conversions. It introduces modest execution and timing risk—manage with liquid instruments, quick journaling, and documentation.
Last editorial tweak: migrated to currencies namespace.