# ShoGam: short-first gambit



## james4beach (Nov 15, 2012)

ShoGam, the short-first gambit strategy, is discussed in this post and this post. I'm doing it at TDDI.

Trying my last reverse gambit of the year! Loving this spike in the USD/CAD this morning, FX market at trade time is 1.3916

Short 200 RY in Canadian margin short account at 75.43, proceeds: $15,076.01 CAD
(Wait for trade to fill, then)
Buy 200 RY in US margin account at 54.206, cost: $10,851.19 USD
Achieved exchange rate 15,076.01/10,851.19 = *1.3893*
Total fees or "forex fees" therefore amount to 0.17%

Trades settle January 5, at which time I'll phone and ask them to journal the shares.


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## GoldStone (Mar 6, 2011)

Don't transfer CAD proceeds to another account before settlement. Or you will be hit with margin fees. 

It's an easy mistake to make. Been there, done that.


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## GoldStone (Mar 6, 2011)

.... and don't purchase HISA funds before T+2. Can't buy them on T or T+1 because they settle the next day.


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## james4beach (Nov 15, 2012)

Thanks. I was wondering about this. Going into today, I had overall margin of around 40K between accounts but $0 cash in all accounts.

Now my US account is -10,851.19 cash
And Cdn short account +15,076.01 cash
Cdn margin account is 0 cash, unchanged

Do you think I should transfer in the USD cash now to get rid of that negative US cash balance, or does it not matter until settlement?


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## GoldStone (Mar 6, 2011)

I don't think it matters until settlement, but I won't guarantee this in writing.


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## james4beach (Nov 15, 2012)

james4beach said:


> Trades settle January 5, at which time I'll phone and ask them to journal the shares.


Today I phoned TDDI and followed GoldStone's script

rep: How can I help?
me: Please take a look at account -F (us margin)
rep: Yes
me: I bought 200 shares of RY, they settle today.
rep: Yes I see they're settling today
me: Can you please journal them to account -G ?
rep: I will recap, you want to transfer 200 shares of RY from account F to G, is that correct?
me: Yes, thanks.


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## GoldStone (Mar 6, 2011)

Is journalling done?

I usually call early in the day and it's normally done within a few hours. Their execution has gotten much better in the last year.


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## james4beach (Nov 15, 2012)

Yes it's done, I see 0 shares in both accounts involved. It happened within a few hours of phoning.

That was the easier TDDI gambit I've ever done! I'll wait a day for the mark to market stuff to undo itself, and I should see the net proceeds of the gambit appear in the margin account.


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## humble_pie (Jun 7, 2009)

you 2 are so funny .each:

it's always been possible to do the short-first gambit. TD has always opposed it. Opposed it devoutly, religiously, feverishly.

of course, there have always been a precious few ultra-hi-value clients who have continued to ShoGam at the big green, ie they always gambit by shorting first. The big green puts up with them because these are the extremely valuable diamond clients. Alas, however, most of us cmf forum peasants are not diamond clients anywhere.

imho, james4 & goldstone, you've let the cat out of the bag. If your posts unleash a tsunami of ShoGam trades like the above - or even a minor tidal wave of ShoGams - i'm betting that the big green is going to block the traffic. 

whatever possessed you 2 guys to get up & babble everything out in public to the watching forum? IMHO you 2 may have sabotaged your own longtime chances for doing the ShoGam Slam. Better you should have said nothing. Better you should have silently continued on your merry ways, surreptitiously taking advantage of novice licensed reps at the TD who aren't experienced enough yet to catch on to what you are actually doing.

elsewhere i've explained why gambit short-first strategies will inevitably burden brokers with hard consequences they cannot support. Which is why brokers will, if serious ShoGam traffic develops, act to prevent it.

PS the ShoGam strategy will likely work - at least until they block it - at all other brokers. Save & except BMO & RBC, where one can gambit online with perfect ease, no need to use an official short account.


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## james4beach (Nov 15, 2012)

In all seriousness, any chance we can delete this thread then? I hate to be responsible for letting the cat out of the bag.


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## GoldStone (Mar 6, 2011)

Nothing stops you from deleting your own posts, if you are THAT concerned.


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## humble_pie (Jun 7, 2009)

james4beach said:


> In all seriousness, any chance we can delete this thread then? I hate to be responsible for letting the cat out of the bag.




james it wasn't you who let the cat out of the bag. It was the TD resource officer himself, remember? he instructed you, ever so precisely, how to do the short-first gambit. To illustrate for you, he even changed your original sell order to a short order.

because of this, i'd say that for the rest of time, you yourself have a personal license & an inalienable right to do the ShoGam Slam whenever you feel like it.

plus it's also possible that i'm out of date. It's possible that the new deal is the big green currently desires that every client should ShoGam. It's possible that your resource officer was simply spreading the glad tidings. I doubt it, but it is possible.

lastly, keep in mind that no broker backlash can develop unless such a critical mass of ShoGam orders builds up that a broker comes to find itself genuinely inconvenienced. The inconveniences are 1) depletion of the official loan post short inventory, & 2) the obligation every broker has to report every short share to its exchange, every night.

these inconveniences are not yet occurring in large numbers. They may never occur. A few ShoGams now & then are not going to make any difference.

what would make a difference is a tsunami of ShoGam strategies, such as the sudden high volume of gambit orders that broke out in 2010 thanks to this forum & Canadian Capitalist's articles. 

there may never be a tsunami of ShoGams, because the differences between traditional, scrappy & short-first gambit strategies are extraordinarily subtle. I rather imagine that you, james4, are one of the few who grasped everything .each:


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## james4beach (Nov 15, 2012)

That makes sense! This method also requires that one has a short selling account.

And that's right ... the TD rep himself walked me through the procedure. License to ShoGam, it is!

Love these conversations, as usual. Thanks to both of you!


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## james4beach (Nov 15, 2012)

Doing another ShoGam today. I liked that USD is over 1.30 again!

FX market rate: 1.3053
short 500 TD @ 57.00 CAD for proceeds: 28,490.01 CAD
buy 500 TD @ 43.6774 USD for cost: 21,848.69 USD
Net conversion rate: 1.3040

*FX fee achieve with gambit: 0.10%*

A new record low conversion fee for me!


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## james4beach (Nov 15, 2012)

Of course the USDCAD _would_ go up nearly a percent right after I sold 20k worth... argh

By the way, this time I phoned an agent on the same day I made the trade and left a request to journal the shares once they settle. The agent said she'd write a note to herself. This seems convenient, if she remembers to actually do it. Perhaps I should phone back on settlement anyway?


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## james4beach (Nov 15, 2012)

I did a little exercise this morning to see if by waiting and trying to time my gambits, I've actually been able to beat the "average" USDCAD rate (my goal is to sell USD at highest possible rate). During the time I've worked in the US, I've recorded the spot FX rate at each paycheque.

If I had automatically converted each paycheque at spot rates, i.e. regularly, the average rate would have been 1.2345
When I look at all my gambits (total CAD out / total USD in), the average USDCAD rate that I realized is 1.2514

So far, I have been successfully timing the FX market it seems  Or just gotten lucky.


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## james4beach (Nov 15, 2012)

Time for another short-first gambit, USD -> CAD. Seems like a good time; USDCAD is 1.3395 which is the highest since March.

short 200 TD @ 60.14 CAD for proceeds: 12,018.01 CAD
buy 200 TD @ 44.8847 USD for cost: 8,986.93 USD
Net conversion rate: 1.33728

FX fee achieved with gambit: 0.17%

Very nice fills from TD on TD Look at that implied rate from the stock difference, (60.14/44.8847=1.3399) is actually better than spot FX.


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## humble_pie (Jun 7, 2009)

.

jas4 you are playing with fire! the short-first gambit strategy is the Achilles' heel of gambit trading, for TD as well as for every other broker not using the ADP mainframe system.

me i've always known about the short-first gambit strategy but i've never suggested it to others in cmf forum. Because i'm a responsible poster who would not put others in harm's way. Short-first gambit trading is a strategy that costs brokers money. It also impairs brokers' loan inventories. Until very recent years TD has always acted forcefully to prevent it.

puzzlingly enough, in very recent years the TD appears to be not only allowing this instant, online low-commission gambit strategy but even to be actively encouraging short-first gambit pairs.

the problems for the broker are twofold:

1) the short-first gambit introduces a formal short position which the broker must record in its overnight short report to the exchanges. It also requires the broker to pay fees to the exchange which is hosting the short position. For this reason alone, it's easy to understand that a broker would balk at short-first currency gambits.

2) tying up a broker's loan post inventory of shortable stocks is another reason why brokers discourage short-first gambit trades.

nowadays - puzzlingly enough - the TD appears to be 100% unaware of the broker-toxic aspects of shorting a gambit pair. It's as if this broker has opened a rear ground-floor window & invited all the neighbourhood break-in artists to climb right on in.

the low-cost instant online gambit strategy would probably work equally well at other brokers - scotia, hsbc, cibc - who use the ISM mainframe, which makes regular gambit trading difficult by blocking the instant online sell side. A short-first strategy might even work at questrade, which has its own custom-built mainframe.

clients attempting short-first gambit pairs should understand that there is a possible failure point. This failure point will only occur after both online gambit trades have been executed. Clients with non-ADP mainframe brokers must next phone the broker to request that the covering stock be journalled across the 2 currencies. This is the point where a broker can intercept or refuse.

best of luck to everyone who tries short-first gambit pairs at the TD. If it were myself, i would simply open an account at one of the 2 ADP-based online brokers. With these brokers - there are only 2 in the whole of canada - gambit pair trading is fast, easy, online, instant, cheap & seamless.

.


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## james4beach (Nov 15, 2012)

Thanks humble, you're right that the broker can cause problems once you phone and ask to journal.

Can you remind me again, which are the two brokerages that allow fast easy gambits?


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## agent99 (Sep 11, 2013)

james4beach said:


> Can you remind me again, which are the two brokerages that allow fast easy gambits?


With BMOIL, I never have to call anybody.


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## humble_pie (Jun 7, 2009)

agent99 said:


> With BMOIL, I never have to call anybody.



ah but do you know why


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## humble_pie (Jun 7, 2009)

james4beach said:


> Thanks humble, you're right that the broker can cause problems once you phone and ask to journal.
> 
> Can you remind me again, which are the two brokerages that allow fast easy gambits?



BMO & royal bank. Certainly at BMO, very smooth & easy online currency gambit trades. We've heard from cmffers with roybank accounts that gambits work seamlessly at RBC as well.

of the 2, both had almost no option trading capabilities as recently as 2 years ago. I don't know what's happening at roybank these days, but BMO has made some glacial progress over the past year or so. The representatives have finally been trained to handle contingent option orders ... although it took the firm 25 years to get there.

there are no commission breaks yet at BMO for buying its sister ETFs, although one would think that the same would be a natural step for this discount broker to take.

what BMO does offer are a fair number of cash promotions each year. If you go there, be sure to land a promotional bonus.

.


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## humble_pie (Jun 7, 2009)

james4beach said:


> Thanks humble, you're right that the broker can cause problems once you phone and ask to journal.




jas4 did you perhaps run into trouble at the big green when you phoned to journal/cover this recent short-first gambit pair?

if so, i feel you owe it to readers on here to mention this. You have heavily promoted the short-first gambit strategy, including setting up this thread for the express purpose.

what has been surprising in just the last few years is the TD totally failing to properly train its representatives. In effect, the big green left a rear ground floor window open, so that short break-in gambit artists could clamber right on in.

what was even more comical - in your case - was how a TD senior resource person personally taught you how to do the short gambit strategy. That was a riot. I mean, he opened the big green window from the inside, held out his hand, pulled you up & over the windowsill to short-first gambit victory.

well, it was fun while it lasted. _Sic transit gloriae mundi._


.


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## james4beach (Nov 15, 2012)

Yup that's right, the TD manager himself (I asked for the supervisor) told me to do this.

I have not asked to journal these shares yet. I was waiting until settlement day... I'll let you know. Part of me still wonders if I should delete this thread because as you say, maybe this approach should not be promoted.

On what basis could they refuse to journal shares, though?


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## doctrine (Sep 30, 2011)

Haven't I heard that some brokers are starting to charge money for journalling shares? That might make it less cost effective, depending on the charge.


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## james4beach (Nov 15, 2012)

humble, an update: yes they journaled it and I am now zero shares in both relevant accounts


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## humble_pie (Jun 7, 2009)

^^

you are one who, theoretically speaking, should have the right to at least one last cooperative short-first gambit cover. Because of how the resource person set you up. Although i don't believe it was a lifetime setup & i doubt the green terms you're currently experiencing are engraved upon stone tablets.

for everybody else, short-first gambits are an experiment in borrowed time. The big green used to oppose them fiercely, for all the reasons i've explained upthread. Somehow in recent years the big nobs have failed to train their new reps in this subtle strategy, IE they've left the rear window wide open.

sooner or later, one fine day, they'll notice that the back window is open & they'll likely move to close it . each:

.


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## james4beach (Nov 15, 2012)

Another ShoGam today, just the trade part (has not settled or journaled yet). My goal is to convert USD to CAD.

Real-time market FX rate is 1.3325
Shorted BNS in Canada for proceeds 30,398.01 CAD
Then immediately bought BNS in US for cost 22,827.87 USD

The resulting conversion rate net of fees is 1.331618 or *net fee 0.07%* -- hey it doesn't get much better than that!


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## james4beach (Nov 15, 2012)

And phoned to journal the shares today. Just a 5 minute phone call (including waiting time). Not bad, and the cheapest FX gambit I've ever done at 7 basis points overall fee! This beats my previous record low fee of 10 basis points.

Wish I had waited a couple days though, USD is up over 1%. Now approaching some of the highest USD rates seen in about a year. Good news for USD holders!


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## humble_pie (Jun 7, 2009)

^^


the astonishing thing is that you haven't sparked a wave of shogammers

by now folks should be shogamming & waltzing & doh-sih-dohing at all the brokers - save RY & BMO of course who've had it for years - & posting their experiences.

idk, maybe no interest? or maybe folks need a short account & these aren't available to everybody?

anyhow it's pretty wicked

each:

.


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## james4beach (Nov 15, 2012)

Thanks! It's certainly a bit of a strange way to do it, and requires a short account (which I don't assume is very common).

I'm really proud of this latest 0.07% net fee though. But I wish I waited a few more days before selling my USD, I converted at 1.332 and now it's up to 1.362


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## james4beach (Nov 15, 2012)

My first ShoGam in a while. I had a bunch of USD that I wanted to convert, but then USD plummeted in the last few months. With the USDCAD bouncing back a bit now to 1.2618, I decided to convert some (timing the FX market). This is the best rate since mid August.

Used MFC as my carrier stock with board lots, great liquidity on both sides of the border. After trade fees, net foreign exchange fee worked out to 0.23% which isn't as low as some of my other gambits but this was a smaller gambit with inevitably larger fee overhead.

Settlement is now T+2, so I should phone TD on Tuesday.


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## humble_pie (Jun 7, 2009)

james4beach said:


> My first ShoGam in a while. I had a bunch of USD that I wanted to convert, but then USD plummeted in the last few months. With the USDCAD bouncing back a bit now to 1.2618, I decided to convert some (timing the FX market). This is the best rate since mid August.




so sorry to veer off the shoGam topic. But here's a tip re BOMIL & regular gambits. Regular as in buy-first-in-one-currency-then-sell-immediately-in-opposite-currency.

BMO is, of course, one of the 2 perfect brokers to gambit online (the other broker is royal bank.) Gambit traders can do the 2nd sell side transaction online, instantly, for a low web commission. No need to phone the broker for anything.

oddly enough - possibly because BMOIL has a high proportion of retired clients - a significant number of BMO gambit traders seem to insist on using the DLRs. Often they have a mistaken idea that the FX rate is guaranteed both ways. This is not true. Only DLR.U is pegged, so parties changing from USD to CAD via DLRs are exposed to currency risk from the moment they purchase DLR.U (keep in mind that the pegging of DLR.U means that parties changing from CAD to USD do obtain the fixed rate that they desire) (on the other hand, they are paying horizons betaPro 20 basis points for this privilege)

for cautious parties who insist on using DLRs, BMO has a small treat. Their website can't handle DLR.U trades, so BMO allows clients to place these orders by phone at the web commission rate of $9.95.


* * * * *


back to thread topic. Jas4's shoGam is a neat sidestep of the flat $43 fee which TDDI will charge for regular gambit sell side orders.

me i'm still convinced that if enough clients start to do the shoGam, the big green will move to block the strategy (a shoGam artificially depletes a broker's inventory of shortable stocks available through the loan post) (a consequence no broker wants) (tch) (plus a shoGam is an official short, so it requires that a broker pay applicable short fees to the exchange where the short position is maintained (another undesirable consequence for the broker) (double tch)

but as long as the shoGam remains jas4's little secret, it looks fine to me .each:


.


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## james4beach (Nov 15, 2012)

If someone is shopping for brokers, as humble_pie says I would endorse BMO or RBC as brokers for easy gambits! The method I use is ... a bit strange 

Speaking of which, I did another ShoGam, this time using CNQ due to alignment with my amount. On 10K USD converted, the net FX fee worked out to 0.15% which is pretty good. Still remains to be seen if I can ever beat the 0.07% achieved last year.

Below I am documenting the way TD Direct Investing calculates margin, as best as I can tell. This can be important if you need to gambit an enormous amount, or really for any margin/short trader. Assume you're using a liquid large cap carrier stock, one that's eligible for reduced margin rates. If you go to Account Balances, you see a nice view of your Margin (right most column) which is the sum of margin in all margin accounts, including short accounts. The overall total is the number that matters, shown in the bottom right of the table: total margin in CAD. You will be in a margin violation if this total goes below zero.

*Don't ever let your overall margin get close to zero. You will get a "margin call", and the broker has the right to liquidate your assets.*

To be extra careful, you may want to first phone TD to confirm that your carrier stock (RY, TD, BNS, CNQ, SU) is eligible for the reduced 30% margin rate.

The first steps of the ShoGam are a short sale, then purchase. These activities _consume_ (or reduce) margin in the following way. Both the short sale, and unfunded purchase with borrowed cash, each eats up (0.30 * stock value) of margin for a total margin reduction of (0.60 * stock value). Once you journal the shares, the positions collapse and free up all the margin.

Example: margin used in today's ShoGam
I started today with 23k CAD total margin. I opened the short and long positions, each worth 13k CAD stock value. The margin reduction was therefore (0.60 * 13k) = 7.8k. This means that my total margin became 23k - 7.8k = 15.2k. At the end of the day, the TD balance screen shows my total margin is in fact 15.1k. It's slightly difference due to stock price changes today, but you can see how this works.

Example: maximum ShoGam possible
How big a conversion could I have made using my 23k CAD total margin? The largest amount I could do safely would have been an exchange of 30k CAD (meaning both the long and short side were for 30k). The margin reduction would have been 0.6 * 30 = 18k. So this would have dropped me from 23k down to 5k available margin, and that's about as close as I'd want to cut it.

Example: safely converting 100k
Let's say I have _nothing_ in my account right now (0 margin), and I want to convert 80k USD into 100k CAD @ 1.25 rate. To do this, I would first transfer the 80k USD cash into the US margin account. This would give me 100k CAD total margin. I would wait until the TD balances screen showed this, to be positive their systems have registered it. Now I can open the short and long. Those two operations consume 0.6 x 100k = 60k margin. That's fine ... my account margin drops from 100k down to 40k total margin, still positive. I wait for the position to settle, journal the shares, and total margin bounces back up to 100k since I end up with 100k CAD cash.

_Warning_: this is how I understand their systems, but I'm not an expert in this. There may be more to TD's margin calculations than this, and I may have mad mistakes! Be careful.


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## james4beach (Nov 15, 2012)

Another ShoGam today:

carrier = CNQ
conversion size = 13K USD
market exchange rate = 1.30171
gambit exchange rate = 1.30017
net FX conversion fees = 0.12%


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## humble_pie (Jun 7, 2009)

james4beach said:


> Another ShoGam today:
> 
> carrier = CNQ
> conversion size = 13K USD
> ...



neat-o


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## james4beach (Nov 15, 2012)

Thanks humble_pie. Compared to TDDI's "preferred" FX rates, I've already saved $500 this year alone in currency conversion fees! I'm probably saving about $1,000 each year in fees!

The change to T+2 settlement also speeds up the ShoGam. I made the trades on Tuesday, journalled Thursday, and as of Friday morning I had the full, settled cash amount ready for withdrawal.

Seems that USD continues to strengthen well past 1.300.


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## james4beach (Nov 15, 2012)

Today's gambit was rough, and took over an hour because I started doing it while TD's system was broken, unable to process Canadian trades. I had to phone into TDDI to confirm trade status. In the resulting time delay, the market moved in my favour, so at least I got a new record low conversion fee (5 basis points) for my trouble even after all fees.

carrier = TD
conversion size = 11K USD
market exchange rate = 1.30363
gambit exchange rate = 1.30304
net FX conversion fees = 0.05%


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## james4beach (Nov 15, 2012)

Converting more USD --> CAD today. I had been waiting for a calm day in the stock market and figured today is about as calm as it's going to get, but the carrier stock still moved against me in between the short sale & buy trades. This results in a higher net FX fee (last line), but still, it's only 25 basis points! And it feels great to sell USD at a fresh high for the year.

carrier = BNS
conversion size = 10K USD
market exchange rate = 1.3624
gambit exchange rate = 1.3589
net FX conversion fees = 0.25%


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## humble_pie (Jun 7, 2009)

james4beach said:


> If someone is shopping for brokers, as humble_pie says I would endorse BMO or RBC as brokers for easy gambits! The method I use is ... a bit strange



a short gambit is indeed not for the faint of heart, nor for the low in margin. Parties contemplating short gambits should read up on margin limitations in jas4's post No. 34 upthread.







james4beach said:


> *Don't ever let your overall margin get close to zero. You will get a "margin call", and the broker has the right to liquidate your assets.*



recently a licensed rep said that the big green is no longer making margin phone calls. Evidently they have too many margin impairments these days & the reps are too busy to make phone calls. Nowadays the big green goes ahead & sells an impaired stock to stabilize an account, period. Interactive Brokers does the same. 

a margin phone call was only ever a courtesy anyhow. Shorting clients should know how to monitor their margin position online.


IMHO frequent currency gambit traders who don't want to short _style jas4_ are best off with a BMO or a royal bank backukp broker account. These are the only 2 brokers whose online platforms support instant gambit pair trading.

rare or infrequent gambitters should be able to happily pay the TD flat fee, which is $43. This is modest compared to traditional broker FX fees on amounts from $20k & up (FX would run around $200 on 20k)

plus, for that $43 fee, the TD reps are well trained & helpful when they are called to do a gambit sell side. I don't know about all the TD reps, but there are certainly some who will walk a novice gambitter through his pair trades (in a standard gambit pair, the opening transaction is the buy side, which the gambit trader does online)


.


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## james4beach (Nov 15, 2012)

You're right humble_pie, a person needs enough margin to do this kind of action. The other problem is that sometimes, when I phone to ask for the journal, the rep pushes back and warns that this trade appears to be non-compliant (looks like shorting-against-the-box). At that point I have to point out that no, I shorted _first_, then bought later. Today when I phoned, the rep had to check with his compliance department for a few minutes, then came back and confirmed the trade was legal because I did indeed short first.

But any time they look at the accounts and see the same long + short position, they get concerned about the legality of the trade. The way I understand things, brokerages and investment banks have to answer to their Compliance department, which enforces securities laws/regulations. This process stresses out the reps because they generally don't like talking with Compliance. Once they check the trade timestamps (takes a bit of work) they see it's all legitimate.

Maybe next time I will try the broker assisted TD flat fee. humble_pie does this $43 cover both trades in the gambit? Perhaps the reps can do the buy & sell quicker than me, and I'm curious to see if their gambit is more efficient (cheaper) than when I do it.


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## humble_pie (Jun 7, 2009)

james4beach said:


> The other problem is that sometimes, when I phone to ask for the journal, the rep pushes back and warns that this trade appears to be non-compliant (looks like shorting-against-the-box). At that point I have to point out that no, I shorted _first_, then bought later. Today when I phoned, the rep had to check with his compliance department for a few minutes, then came back and confirmed the trade was legal because I did indeed short first.



the delay while they fret over whether you were shorting the box should be tolerable, no? because you will have completed both your trades, you will have nailed your exchange rate close to spot, the only purpose of the phone call is to ask the big green to journal the gambit shares on the diagonal in order to close the short position. 





> Maybe next time I will try the broker assisted TD flat fee. humble_pie does this $43 cover both trades in the gambit? Perhaps the reps can do the buy & sell quicker than me, and I'm curious to see if their gambit is more efficient (cheaper) than when I do it.



it'll be 2 separate trades. The buy side in a standard gambit should be an online trade, at online commish. Then the sell side will be done by the rep for the flat $43 fee.

but don't buy first. A good method is to get everything ready. You know the drill. Ultra quiet day. Get both detailed quotes up on the screen. Prepare but don't send the buy order.

instead, phone the big green. Explain what you are doing, ask the rep to set up the sell side. As soon as you release the buy order & he sees it filled, the rep will release the sell order.


* * * * * 


another way that reportedly works (a very capable TD rep explained this to me) is to buy online in first currency account & in first currency market as usual (note: this is the exit currency)

next - the tricky part - sell online out of the same currency account but into the opposite currency market. Your TD account should now show you the net proceeds in the first currency, but the broker FX fee will be invisibly subtracted from these proceeds, or at least it will be subtracted if you leave the position in that first currency account overnight.

you will have the rest of the day to fix this up, since the TD system doesn't really hit with the FX fees until overnight. How to fix up? phone the big green no later than 4 pm & ask the rep to CFO the order over to the opposite currency account. What you should then see in opposite currency account (remember, this is the desired currency account) is the sell trade in correct opposite currency, with online commission but no other fees included.

i've never done this. The suggestion is only hearsay. I've noticed, though, that it seems to be only the best & the brightest of the TD reps who have figured this out.

caution: if doing the CFO-gam, be absolutely sure you phone the CFO in the same day, by 4 pm. Some reps say there is a brief window of time after 4 pm - brief as in 15 minutes or so - to CFO existing orders, but i wouldn't count on it. Once the order slips past this time frame the overnight FX rate will permanently apply.



EDIT: dingdong, the memory gong!

IIRC didn't we discuss the CFO-gam couple years ago? didn't jas4 actually try it out? didn't a rep plus a resource person scold jas4 for trying to sneak a 100% online commish gambit pair trade under their noses when he phoned to do the CFO?

didn't the resource supervisor then explain to jas4 how to do a short gambit? IIRC that resource super even moved jas4's sell order into his short account?

sometimes it's a bone-crushing bureaucracy, that TD


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## james4beach (Nov 15, 2012)

humble_pie said:


> the delay while they fret over whether you were shorting the box should be tolerable, no? because you will have completed both your trades, you will have nailed your exchange rate close to spot, the only purpose of the phone call is to ask the big green to journal the gambit shares on the diagonal in order to close the short position.
> . . .
> IIRC didn't we discuss the CFO-gam couple years ago? didn't jas4 actually try it out? didn't a rep plus a resource person scold jas4 for trying to sneak a 100% online commish gambit pair trade under their noses when he phoned to do the CFO?
> 
> didn't the resource supervisor then explain to jas4 how to do a short gambit? IIRC that resource super even moved jas4's sell order into his short account?


I think that's right. On the ShoGam, there is no time sensitivity as I've done all the trades. It's just about moving the shares around to the right accounts.

And as you say, I did try the other method, which proved (in my experience) to be more problematic. I've gotten far fewer questions doing the ShoGam.

The DLR method may be the easiest way to do gambits at TD.


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## goldman (Mar 18, 2017)

@ James 
That's too bad you've found we can't just use TDDI's new transfer feature to flatten the trade and we still need to call in to complete the trade.

The first part seemed to go fine when I tried it (a few years ago). On day 1 I shorted DLR.u and immediately bought DLR, then called in to TDDI to request a broker flatten the trade, and 
that part seemed to go fine. But what I found unexpected was I noticed the short account (holding the proceeds of selling DLR.u) was 'marked to market' each day. 
My account showed three separate transactions made to add or remove funds from the long USD account each day until settlement. I found this aspect a bit confusing because I expected that after shorting DLR.u and buying DLR that the exchange rate was now 'fixed'. 

Is this mark to market movement of funds in the days following the Shogam normal and what you'd expect to see in the short account every time you do another 'shogam'? 


TD's help site says, "Short positions are "marked to market" daily by transfers of cash between your margin and short accounts.
...
When a short position is first created (i.e. security sold short), the short account will have a cash balance from the proceeds of the sale and the market value of the short position will appear as a negative. The cash balance equals the negative market value of the short position.

When the price falls or rises, the market value changes accordingly, but the cash balance still reflects the original proceeds. Therefore, on a daily basis, a "mark-to-market" is calculated to balance out these gains or losses and equalize the cash balance with the market value of the position. TD Direct Investing automatically moves funds between the margin account and the short account as required. There is always a one-day delay between the calculation and the moving of funds."


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## james4beach (Nov 15, 2012)

goldman said:


> Is this mark to market movement of funds in the days following the Shogam normal and what you'd expect to see in the short account every time you do another 'shogam'?


Yes, every time I do the short-first gambit, I see the mark-to-market activity until the whole thing is closed out. This is just how TD does short positions. You'll want to have enough cash in the account so that a mark to market doesn't put you into a negative cash position. That wouldn't last long anyway but you might incur some interest charges if you get into negative cash.

I might be missing something but if you're using the DLR method, I don't see why you'd need to short anything though. Wouldn't you just buy the DLR of your source currency, use the online system to journal the shares (big advantage now) and then sell in the destination currency?

I'm not using DLR because that vehicle has US tax implications while I'm resident in the US. Without that concern, DLR is the obvious route to go.


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## humble_pie (Jun 7, 2009)

james4beach said:


> Without that concern, DLR is the obvious route to go.



i wonder how that could be true nowadays though? if indeed it was ever true

check the relentless rise of DLR.U. It doesn't appear to be pegged anymore. There's a considerable spread between the DLR pair now & the only way to overcome it - ie the only way to obtain that desirable FX spot rate - would be to pair trade a highly liquid common stock

this means instant gambits. Easy done at BMO & RYbank. OK at TD for a flat fee of $43. Completely unavailable at some non-cooperative brokers.

then there's jas4's quirky shogam. It's nice. Problem is, it's not nice for the broker, so if/when enough folks at the big green ever do catch on, they'll likely move to snuff it out .each:


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## james4beach (Nov 15, 2012)

humble_pie, I do see that the DLR.U price is moving, but the ratio of the two still looks correct to me. At Friday's close, DLR=13.34 and DLR.U=10.06. Exchanging between these two using journals means an exchange rate of 1.326 and the FX spot market rate according to Yahoo was 1.325 at the same time.

That's awfully close, within 0.08%. Isn't the ratio of the prices the key factor? I am curious why DLR.U is gaining a penny every once in a while, though.


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## smihaila (Apr 6, 2009)

@james4beach, any tips in regards to performing the first part of the ShoGam flavor of NG, namely the short-sell order? For example:

Have you been using market orders (eventually also for the long buy side), or limit orders (i.e. with limit price set to the current BID price)?
On the NYSE side (in case a high-priced, high-volume carrier stock is being used, instead of DLR/DLR.U), would setting the AON mode impact the speed of the order getting filled out completely?
Is using board lots essential?
Other tips specific to TD Direct Investing?

Thank you!


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## james4beach (Nov 15, 2012)

smihaila said:


> @james4beach, any tips in regards to performing the first part of the ShoGam flavor of NG, namely the short-sell order? For example:


I actually haven't used this method for a long time, because I'm now using DLR instead since then I can do it entirely myself without ever phoning in.

But if you do still want to use the short first method, yes it would be used with a carrier stock such as TD or RY. I always use limit orders. Board lots are not essential, but they get you better and faster fills.


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## smihaila (Apr 6, 2009)

james4beach said:


> I actually haven't used this method for a long time, because I'm now using DLR instead since then I can do it entirely myself without ever phoning in.


While I would also prefer using DLR - because it feels less risky and more deterministic (for the CAD=>USD direction at least, i.e. you just buy enough shares for the cash you have, and no price / currency slipage at the exit / sell side) - not to mention the journalling can be done completely online, as you mentioned - its cost (0.2%?) doesn't seem to scale well at higher amounts to be converted (mid six figures).
The short-first can achieve 0.05% with a bit of luck, I presume? For a cost savings of maybe 1k.



james4beach said:


> But if you do still want to use the short first method, yes it would be used with a carrier stock such as TD or RY. I always use limit orders. Board lots are not essential, but they get you better and faster fills.


Thanks for the tips.

The short-selling feels a tad riskier and less deterministic, simply because:
(1) You don't know how long it takes to execute (at the bid price that you determined when you calculated how many shares to buy on the long-side), and fully, and
(2) By the time you are finally in "green" to initiate the long position, again, the ASK price based on which you calculated the number of shares to buy, may go up, and hence (a) the overall NG cost will increase and (b) worse, you may run out of cash in the long position, in order to buy the original number of shares that you've originally set your mind to.

For the short-first, I guess I'll have to account for a margin/buffer of price increase, say 0.01%, for the long position (to be on par cost-wise with DLR variant, as worst case scenario). So basically the num_of_shares_to_buy = (amount_to_convert - $9.99_commission) / current_ask_price / 1.001 ?

I've also noticed that for large short orders, sometimes, TDDI enables a warning for the short-sell, like "order will have to be reviewed manually by a trade desk agent", but only on certain trading days - probably it's sensitive to some current inventory of securities available for lending, not sure. IF that happens, then it may be a potential source of slow-down for the short to be fully filled, which also adds delay until you get to submit the long/buy order.


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## james4beach (Nov 15, 2012)

smihaila said:


> For the short-first, I guess I'll have to account for a margin/buffer of price increase


I don't think the short first is a good idea in your case, with such large amounts. Doing short selling "eats up" margin so, as I recall, you need to have excess margin available to start the activity. The amounts I converted using the short first method were smaller than the amount of equity and margin that I had available.

And it's true that the quotes can shift around on you in between the trades. For the large amounts you're doing that really adds uncertainty.

Personally I just wouldn't want to take the chance of overstepping the margin requirement when dealing with huge amounts like you're talking about so I would avoid the short selling. Also, there's a question of the broker agreeing to lend you the shares short. When I was doing ShoGam with maybe 400 TD shares, that's pretty easy to borrow, but for the large amounts you're talking about this may not be freely granted by the broker.

Another way to put this is that nobody cared about the small (insignificant) short selling I was doing for ShoGam. But the broker might care about the level you're talking about. At times I got the sense I was pushing my luck by using the short selling technique and if you read above, you can see that sometimes the broker didn't exactly approve.

My guess is that they *would* manually review large short sales.

I think you should avoid the short selling approach, and just use the regular DLR method where you buy, wait for it to settle, then use the securities transfer feature. Yes perhaps you might pay a bit of a higher fee for this, but there are fewer things that can go wrong.


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## smihaila (Apr 6, 2009)

james4beach said:


> I don't think the short first is a good idea in your case, with such large amounts. Doing short selling "eats up" margin so, as I recall, you need to have excess margin available to start the activity. The amounts I converted using the short first method were smaller than the amount of equity and margin that I had available.
> 
> And it's true that the quotes can shift around on you in between the trades. For the large amounts you're doing that really adds uncertainty.
> 
> ...


I'm afraid I don't understand - how could the margin requirements be overstepped?
I have cash in the margin account that is the source of conversion (CAD). Which constitutes the initial total Buying Power (mid six figures, in CAD, or four hundred k something in USD equivalent). Then, 30% of this max margin limit, gets consumed for the the short-sell, and another 30% for the buy-long. I'll still have 40% of my cash as available margin after both the short-sell and long-buy orders are executed, no? Exactly as you have explained so eloquently in one of your previous posts - in this very same thread I think.

But a fairly large short-sell order, may indeed be problematic. Unless I call in advance TDDI's securities lending sub-department, to advise what the real objective is, namely not a traditional, relatively long-lasting short-selling but a very ephemeral one.

On the positive side, could such large order may move the market - even for a highly-liquid / largely-traded carrier stock? Would that be to my advantage (i.e. ask price shrinking on the other, long-buy side, due to the arbitrageurs working on narrowing the gap between the 2 different markets)? Or not? Or, could such direction be random?

Thanks again.


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## james4beach (Nov 15, 2012)

smihaila said:


> I'm afraid I don't understand - how could the margin requirements be overstepped?


It was so long ago, I can't remember the details, but there's an earlier post in this thread which might have useful info:









ShoGam: short-first gambit


With BMOIL, I never have to call anybody. ah but do you know why




www.canadianmoneyforum.com


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## smihaila (Apr 6, 2009)

james4beach said:


> It was so long ago, I can't remember the details, but there's an earlier post in this thread which might have useful info:
> 
> 
> 
> ...


^ Yes, that's the one, precisely. And the last paragraph of that post, was giving an "Example: safely converting 100k", which assumed you're cash-funding the margin account targeting the long-position, before proceeding with any order:
"Let's say I have _nothing_ in my account right now (0 margin), and I want to convert 80k USD into 100k CAD @ 1.25 rate. To do this, I would first transfer the 80k USD cash into the US margin account. This would give me 100k CAD total margin. I would wait until the TD balances screen showed this, to be positive their systems have registered it. Now I can open the short and long. Those two operations consume 0.6 x 100k = 60k margin. That's fine ... my account margin drops from 100k down to 40k total margin, still positive. I wait for the position to settle, journal the shares, and total margin bounces back up to 100k since I end up with 100k CAD cash."

So in my case, with the 500k+ funding in the CAD margin account, I would first short-sell about 400k USD worth of high-volume stock (say CM priced at US$ 125), with limit order and AON set (just in case, to avoid price movements in the wrong direction), which consumes about US$ 120k worth of margin (out of about US$ 400k total). Once ordered approved (possibly manually), initiate the buy-long order on the TSX / CAD side, for the same number of shares, and consuming another chunk of US $120k worth of margin (aka 150k CAD) and with plenty of margin reserve (40% - 200k cad).

Considering the amount, maybe divvy it up in 4 equal orders. But is 3170 shares of CM really big? . Another option would be to just pay the full $34 commission, and do it on the phone with a TDDI agent, initiating my long-buy first by myself, telling the desired limit price on the US side to the agent, and letting the agent do the sale on US side? That will also avoid a need for journalling, I presume?

Also, I'm not sure if it's wise to call TDDI in advance, to just make them aware of my future NG intention (i.e. when the forex rate get a bit more favorable)? Could such call put a rather negative / restrictive note on the account?

Thanks.


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## james4beach (Nov 15, 2012)

smihaila said:


> Also, I'm not sure if it's wise to call TDDI in advance, to just make them aware of my future NG intention (i.e. when the forex rate get a bit more favorable)? Could such call put a rather negative / restrictive note on the account?


I just don't feel right commenting on the mechanics of this because it's been so long since I've done it.

Just being honest here, my gut feeling is that you should forget about the short selling method. Sometimes I sat and watched my short sale order pending / delayed, I presume while a human reviewed it. My orders were valid but I do recall some delay to fill them, and I think they are reviewed manually.

That could go badly for you, if they are still reviewing each trade. With a large trade like yours a bit of stock volatility could really hurt you.


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## Covariance (Oct 20, 2020)

An additional hassle: I’ve had trouble getting shares moved when there is a corporate action, or close to a dividend payment date.


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## smihaila (Apr 6, 2009)

I've tried reaching TDDI by phone, in an attempt to get a "pulse" as to how their trading desk or/and securities lending sub-departments feel about a short-first strategy. I've been waiting for 1hr+ on the phone, and still nobody answering.
I used the TDDI's general line: 1-800-465-5463 - option 3 => 3, or option 2 (place orders) => 1.
There seems to be also a non toll-free / local line 416-982-7686 but it was giving be a busy tone.

Is there a trick to getting TDDI on the phone quicker?

Based on my first-hand experience so far with calling TDDI, going with short-selling as strategy, or even attempting a full, phone-assisted transaction (with buy on RY.TO done by customer) followed immediately by the agent doing a sale on RY.NYSE, would be out of question.

Thanks.


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## james4beach (Nov 15, 2012)

smihaila said:


> Based on my first-hand experience so far with calling TDDI, going with short-selling as strategy, or even attempting a full, phone-assisted transaction (with buy on RY.TO done by customer) followed immediately by the agent doing a sale on RY.NYSE, would be out of question.


Yeah these phone delays are another reason to stick with DLR.

Covid has been very bad for the ability to reach the brokerages by phone. At least I'm assuming it's due to the pandemic and everyone now working from home. I really hope they aren't cutting staff.


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## Spudd (Oct 11, 2011)

smihaila said:


> I've tried reaching TDDI by phone, in an attempt to get a "pulse" as to how their trading desk or/and securities lending sub-departments feel about a short-first strategy. I've been waiting for 1hr+ on the phone, and still nobody answering.
> I used the TDDI's general line: 1-800-465-5463 - option 3 => 3, or option 2 (place orders) => 1.
> There seems to be also a non toll-free / local line 416-982-7686 but it was giving be a busy tone.
> 
> Is there a trick to getting TDDI on the phone quicker?


If you have the app on your cellphone, there's a "contact us" link inside the app that apparently connects to a human faster.


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## smihaila (Apr 6, 2009)

james4beach said:


> Yeah these phone delays are another reason to stick with DLR.


Very true!



james4beach said:


> Covid has been very bad for the ability to reach the brokerages by phone. At least I'm assuming it's due to the pandemic and everyone now working from home. I really hope they aren't cutting staff.


I too hope, that the long, unpredictable wait times are mainly caused by employees now working from home, due to the pandemic. Otherwise, I would've considered maybe going with another brokerage :-(.

Thanks!


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## smihaila (Apr 6, 2009)

Spudd said:


> If you have the app on your cellphone, there's a "contact us" link inside the app that apparently connects to a human faster.


Great idea!
I do have the Android app installed on a smartphone, but such phone has no voice service (I'm too frugal sometimes) - maybe it can audio-connect thru wifi and an app-specific audio channel, instead of cellular?

Thanks.


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## smihaila (Apr 6, 2009)

... ah, I see how the "Contact Us" => "Call" => TDDI works through the smartphone app: It uses the phone's standard Dialer app, and it dials 1-877-883-8125 (which is not the standard toll-free TDDI number) followed by a comma for a 0.5s pause, and then followed by some randomly-generated digit sequence - which is probably matching a code generated by the TD's smartphone app, not sure.

The problem is, I have my voip / sip client enabled in the phone (since I don't have cell plan/signal), and it typically works fine. But the comma chars are not compatible with voip 
But in any case, those digits can be dialed manually, so this discovery may still be worth something.


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## smihaila (Apr 6, 2009)

I was able to get in touch with a TDDI representative, who was able to provide quite good, comprehensive information.

Considering at least these 3 NG variants:

1. DLR/DLR.U

2. Customer staying on the line with an agent, customer preparing a long-buy order on something like RY.TO, and the agent issuing a limit sell order on the RY:NYSE immediately after seeing the buy filled. I was told that the way they perform the sell side, internally, is actually through a short-sell.

This variant requires the customer to continue to be present on the phone, if s/he wants to actively manage the limit price, in case the limit sell order isn't filled out quickly. In other words, it cannot be done by the customer once the phone conversation hangs up.

Even if both orders are considered almost-instantaneous, the customer would still have to wait 2 business days for everything to settle. But obviously they take care automatically of journalling of share between the 2 orders for the customer.

The total commission to paid would be: $9.99 CAD for the customer-initiated long-buy, plus $43US for the TDDI-initiated (internal short) sell. I wasn't aware, btw, that the $43 is a fixed price, and additional 8 cents / share sold are no longer charged (that's a discrepancy from their "Schedule of Fees" PDF with the most recent issue date being April 2020)

3. James' short-first method: The agent had put me on hold, and made sure to spend a good 20 minutes consulting with another team. And he said that it's not typically done, but there wouldn't be any problem with it. Including the fact that about 500k (even calculated in US$) worth of short-sell order, for highly-traded stock like RY or TD, is not considered a big order at all. So they expect 3500 - 4000 shares to always have coverage in their inventory (he said that it has to be "proved" for auditing purposes, via some long positions that the brokerage house itself is expected to have with another "market maker").

He also said that such 500k-ish short sell order would take about 1 minute to pass inventory validation (they call it "check for coverage"), and while the order goes through but still not completely filled, the customer can always "manage" it by either reducing number of shares and/or updating the price, and such actions would not be subject to additional manual reviews with the trading house.

The recommendation was to always use limit orders!

He was also told that during those 2 business days until T+2 settlement date, I would be subject to fluctuations and mark-to-market calculations, and that in theory, the short margin account could register negative balances during that period [Although I think that this aspect was clarified about, on this forum and at least another forum - it shouldn't be a problem, right?]

So, between those 3 NG variants, he stated that the Option #2 is what TDDI considers a "true, instantaneous, NG method". With also reasonable acceptance for Option #1. But he added that I wouldn't have an issue at all with using also Option #3.

As last-resort, I also asked about doing a forex with the TDDI brokerage house itself. And he said that the online rate, even when queried via the TD Web Broker platform, comes actually from TD Canada Trust's general FX Trading desk. And if one wants to get a better rate, after seeing what that online rate is, call TDDI and they may be able to offer a better rate. He said the best rate is for a greater-than-$US100K tier, which at the time of my call, was 1.2525 (vs. 1.24988 spot rate), which is 26 basis points. He said that he got the quote through an FX Desk that may be from TD Wealth, and that with that platform they have more leeway in terms of offering a rate that may be a tad better than what the computer says - considering high-worth customers / large amounts converted. A 0.26% rate above spot rate feels much better than the typical 0.50% that I've been seeing thru the online quote for amt = CAD$250k.

Now, in the light of this information, which option would you go for? Assuming a scenario like "let's get DONE with this, in one order, instead of multiple smaller orders".
I still find the short-first doable, now with the additional assurance on inventory and 500k not being considered an atypically-high order...The other 2 (DLR or full-commission-TDDI-does-the-sell-order) are also palatable.

Thanks.


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## Covariance (Oct 20, 2020)

Another option you may wish to consider:
1. Buy shares on NYSE
2. Sell Call options on Canadian side that are well in the money.
3. T+1 you will get the option contract proceeds deposited into your account ($CAD).
4. T+2 the shares will settle on the US side
5. T+3 you transfer the shares to your CAD account.
6. When the options expire your shares will be taken and you will receive the rest of your cash.
At any point between 5 and 6 you can buy back the options and sell the shares to close out at a profit if appropriate.

Your profit will be the option premium. Your risk will be the shares tanking before the options expire. If that is a concern you could give up some of the premium and by same strike puts (creating a synthetic short).


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## james4beach (Nov 15, 2012)

Covariance said:


> 2. Sell Call options on Canadian side that are well in the money.


Unless someone has expertise with options, I wouldn't do this. Options are complex and these trades are easy to screw up.


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## Covariance (Oct 20, 2020)

james4beach said:


> Unless someone has expertise with options, I wouldn't do this. Options are complex and these trades are easy to screw up.


Agreed - one should not attempt unless they know what they are doing.


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