Norbert's Gambit - worth it?

# Thread: Norbert's Gambit - worth it?

1. ## Norbert's Gambit - worth it?

How much do you actually save with Norbert's Gambit converting from USD->CAD? I've read that it is only worth it if you are doing more than 5k, but I'm trying to understand the math.

If I use https://www.tdcanadatrust.com/m/prod...ices/rates.jsp to figure out how much TD would convert 10k USD->CAD they say, "Conversion : 13,239.00 CAD [exchange rate: 1.3239]" but I presume there is a fee for that, but I can't seem to find it. If I do that same exchange via Norbert's Gambit, what "rate" am I getting? How can I compare the two to understand how much I save by doing the Gambit through something like BMO?

2. To figure out what your savings will be, first use this google USDCAD quote to learn the regular market rate. Right now the market rate is USDCAD=1.3662 but the TD Canada Trust quote is showing 1.3365. That means they are charging you a fee of 1.3365/1.3662 - 1 = 2.2% fee

You should get a sample quote from your BMO brokerage to figure out what fee they are charging. If it's like TD Direct Investing, it will be approximately 1.5% fee. Call this FXFEE

The next question is how much better the gambit is. This will depend on which brokerage you use. I'm not familiar with the steps using BMO, so you should figure out what the gambit steps are. Is it two trades at \$10 each? Figure out your total trade costs, call it GAMBITFEES. Note that a 10 USD trade fee is about 13 CAD.

Once you know all these numbers, here's how you'd figure out if the gambit method is worth it to convert INPUT amount of USD to OUTPUT amount of CAD.

Converting the regular way at the bank or brokerage: the resulting OUTPUT = INPUT * USDCAD * (1 - FXFEE)
Using the gambit method: the resulting OUTPUT = INPUT * USDCAD - GAMBITFEES
Then you see if your increased OUTPUT is worth the effort.

You'll see right away that gambits use a constant fee whereas bank conversions are based on percent. This means gambits become more attractive with larger amounts.

Here's an example for my recent gambit trade. INPUT=22,828 USD, the market rate at the time was USDCAD=1.3325, my brokerages has FXFEE=0.015 and my GAMBITFEES=23

If I converted using the broker, OUTPUT = INPUT * USDCAD * (1 - FXFEE) = 22,828 * 1.3325 * 0.985 = 29,962 CAD
If I use the gambit, OUTPUT = INPUT * USDCAD - GAMBITFEES = 22,828 * 1.3325 - 23 = 30,395 CAD

Therefore using the gambit I made \$433 extra

3. Originally Posted by james4beach
Here's an example for my recent gambit trade. INPUT=22,828 USD, the market rate at the time was USDCAD=1.3325, my brokerages has FXFEE=0.015 and my GAMBITFEES=23

If I converted using the broker, OUTPUT = INPUT * USDCAD * (1 - FXFEE) = 22,828 * 1.3325 * 0.985 = 29,962 CAD
If I use the gambit, OUTPUT = INPUT * USDCAD - GAMBITFEES = 22,828 * 1.3325 - 23 = 30,395 CAD
Thanks for the break-down, that helps me understand significantly!

If I apply your method, looking at the current rates, I'm saving not as much as you in the process:

Looking at the BMO's rate (FXFEE) by visiting https://www.secure.bmoinvestorline.c...ent/tradeFX.do and putting in \$100000 Buy/CAD, you get 1.356 because you get some kind of preferred rate if you do more than 75k (1.356/1.3652 -1 = .67%), but 1.349 if you do anything less (1.18%). Although, if you read their fee schedule, they say, "In addition to the commissions or other fees applicable to the transaction, BMO InvestorLine (or parties related to us) will earn spread revenue up to 1.6% from a foreign currency conversion", so I'm unsure if 1.6% is an amount is on top of what the FX rate is. I'm going to guess that because they say they earn 'spread revenue up to 1.6%" that the 1.18% is the FXFEE. So, using your formula to convert using the broker: 13490.91 = 10000 * 1.3652 * .9882. If I use Tangerine's rate of 1.343 (https://www.tangerine.ca/en/rates/index.html), its 13468.65, if I use my bank's rate (1.3272) its 13470.81.

BMO's fees are \$9.95 CAD/trade. So converting using the gambit method: 13632.10 = 10000 * 1.3652 - 19.90

So using Norbert's gambit saves me \$141.19 from BMO, \$163.45 from Tangerine, \$161.30 from my bank: not a huge win. When it is 20k, the savings do increase: \$302.29 more than BMO, \$346.79 more than Tangerine, \$342.48 more than Bank.

4.

5. Maybe someone here who uses BMO for gambits could post and share their experience.

6. Originally Posted by james4beach
To figure out what your savings will be, first use this google USDCAD quote to learn the regular market rate.

i wouldn't use the google quote site. I'd use XE.com, a well-known global currency converter with just about every currency on the planet.

a couple minutes ago google was saying 1 USD = 1.3674 CAD
but XE dot com was saying 1 USD = 1.36695

there's a big difference.

7. Originally Posted by lipsync

Looking at the BMO's rate (FXFEE) by visiting https://www.secure.bmoinvestorline.c...ent/tradeFX.do and putting in \$100000 Buy/CAD, you get 1.356 because you get some kind of preferred rate if you do more than 75k (1.356/1.3652 -1 = .67%), but 1.349 if you do anything less (1.18%). Although, if you read their fee schedule, they say, "In addition to the commissions or other fees applicable to the transaction, BMO InvestorLine (or parties related to us) will earn spread revenue up to 1.6% from a foreign currency conversion", so I'm unsure if 1.6% is an amount is on top of what the FX rate is. I'm going to guess that because they say they earn 'spread revenue up to 1.6%" that the 1.18% is the FXFEE. So, using your formula to convert using the broker: 13490.91 = 10000 * 1.3652 * .9882. If I use Tangerine's rate of 1.343 (https://www.tangerine.ca/en/rates/index.html), its 13468.65, if I use my bank's rate (1.3272) its 13470.81.

ouf! me i say don't bother with the bank or broker rate. It's always going to have a hidden FX fee built in, in addition to the basic spot rate. Always.

here's a simple gambit check. Set up a simultaneous pair of quotes with a highly liquid canadian interlisted stock. RY is a good choice.

take the mid-point market price on both toronto & new york. Divide one by the other. Go immediately to XE dot com & compare. The rates will be almost the same.

what is happening is that the currency gambit trader is riding on the coattails of the arbitrageurs. The arbs keep the liquid interlisted markets like RY picked to the bone. Thanks to the arbs, a gambit trader will always obtain close to the spot rate. Perhaps not quite as good as spot because, in his haste to complete the gambit pair, the retail gambit trader should sell to the bid price instead of waiting for what he hopes will be an advantageous uptick.

* * * * *

someone who really wants to question his broker or bank rate should do the above exercise - ie obtain the arbed rate for a proposed gambit pair trade, then compare that rate to what his broker or bank would charge for the same principal amount of money.

don't try this outside of heavy trading hours though. An expert cmffer who always used RY said he'd usually gambit shortly after 11 am, when volume was peaking.

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8. Originally Posted by james4beach
Maybe someone here who uses BMO for gambits could post and share their experience.

the BMO approach is simple, intuitive, self-explanatory. I imagine royal bank is the same.

BMO & RY are the only 2 brokers in canada whose platforms allow instant, online, low-cost gambit trading. Every other broker has got some glitch or screwup with the sell side.

it's the BMO/RY mainframe. They're both using ADP, which works on CUSIP numbers only.

other brokers are leasing ISM from IBM, it doesn't permit instant online gambit sell orders (it's true that back in the bad old RRSP monocurrency days, the TD platform did allow instant gambit trading. This was because the big green web designers had tricked the system into "thinking" that all RRSP trades including USD trades were canadian trades. To correct for this TD used to have autowash, statements that looked like hieroglyphs, FX fees on USD dividends, other pesky problems)

back to ADP, let no one think this is a "new" or improved mainframe. Apparently ADP is as old as legacy ISM, a DOS based system.

the supreme advantage of ISM is that it is a fail-proof workhorse. I've never seen or heard of ISM making a mistake. By contrast, i once had an entire security disappear from my BMO account. I inquired, they had backup systems, they restored the position within hours. But ever afterwards i wondered what would have happened if i had never noticed or inquired. Would the security have disappeared forever? tch

* * * * *

when gambit trading at BMO, the only tricky point is to remember, when selling, to instruct the system to sell in the desired go-to currency. IE one instructs to sell "in US market" or "in Canadian market" as the case may be (depending on which direction one is gambitting.)

a first-time gambit trader at BMO or RY will find that the trade looks messy for a couple days even past settlement date. He will have both long & short positions. His cash balances may be unreliable. But by the 4th or 5th day after the trade date, all will have cleared up miraculously. Gone will be the gambit shares. In their place will be lovely new cash in the desired currency, all miraculously procured without any FX fee whatsoever.

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9. I've done the gambit successfully a few times, primarily within our RSP's but as a VIP client with my bank sometimes I take the easy route with non registered accounts. Just exchanged some USD this morning at 1.3634 which wasn't far off what I would have gotten with the gambit and well above the 1.34 standard rate from the bank this morning. Also nice it only took 30 seconds by phone, the banker called me 15 minutes after I emailed her and while still on the phone the USD was in my CAD chequing account.

10. Originally Posted by humble_pie
the BMO approach is simple, intuitive, self-explanatory. I imagine royal bank is the same.
Good summary above hp. I can vouch for RY also being simple, intuitive, and self explanatory with N. Gambit. It works flawlessly and as you said always settles out 3-5 business days later. To avoid the risk with possible early onset OF syndrome I always have my instructions with me to double check my entries for accuracy! So far so good.

11. ^^

i'm glad it works out so well for you! thankx for posting the reminder about royal bank broker.

roybank & BMO are the go-to pair when an investor needs to convert currencies frequently (other frugal manoeuvres are forex trading at interactive brokers & jas4beach's clever shogam flip at the TD, which doesn't seem to have caught on here in cmf forum.)

i've sometimes wondered what top managers at royal bank & bmo brokers think about gambit trading. It's true that the strategy could deprive them of FX fees they could otherwise charge for converting a like amount of money.

but outweighing that concern is the fact that the freedom RY & BMO both provide to gambit online, instantly, at ultra-low commissions each side, is bringing them new business. They remain the only 2 brokers in canada that are able to facilitate this arbitrage so efficiently.

other brokers using ISM mainframe systems will never be able to replicate the ease with which RY & BMO - both based on another mainframe called ADP - can sashay & gambit & doh-sih-doh their clients. One could say that RY & BMO form a tiny gambit cartel in canada.

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