# Reverse gambit non-registered



## james4beach (Nov 15, 2012)

Sorry for starting yet another gambit thread. I did read the PWL document and also read canadiancapitalist's page, which mostly focus on the CAD-->USD direction. I'm trying to convert *USD to CAD* and I want to make sure I understand how this works and the caveats.

I'm using TD DI non-registered accounts (US margin, Cdn margin). Time is not an issue, and as I understand it, I will have to wait for the buy to settle before requesting journalling. Is this correct, that if I want to pay the $10 discount trade price, I have to wait for settlement before journalling?

Using DLR, I did a dry run of this today. Are my steps right? Start with 5000 USD. Spot FX is 1.1219, the broker would convert at 1.1065

1. Buy 500 DLR.U by hitting the ask at 9.98 [position in US margin acct]
2. No currency conversion has happened yet. Wait for trade to settle; FX not locked in
3. After settlement, call TD DI and ask them to journal it to DLR [Cdn margin acct]
4. Sell DLR (today had bid 11.20)
5. Result with today's quotes 5000 USD --> 5,590 CAD, that's $57.50 better than broker. Net FX fee achieved is 0.35%, versus broker's 1.4%

humble_pie has posted before that one is exposed to FX when converting in this direction. I'm having trouble wrapping my head around this... in my case, the time I begin step #1 is arbitrary since I am converting a somewhat steady stream of incoming USD.

Yes it's true that I end up waiting 3 days while my money is locked up in DLR.U, but that transaction is "unity". I'm not an FX market timer to begin with. Am I at a disadvantage by using DLR.U like this?

What's the ideal way to do the USD --> CAD gambit? If using common equities, what is the advantage of that method? Seems to me you have equity price fluctuation risk if doing that!


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## CanadianCapitalist (Mar 31, 2009)

DLR.U is fixed in price. DLR fluctuates based on the CAD-USD exchange rate. Therefore, when you buy DLR.U and then sell DLR, you are basically exposed to the CAD-USD fluctuations during the gambitting process. 

I have done the USD-CAD gambit at TDDI. Use a liquid stock like TD (avoid low priced stocks like BBRY) and place a phone order for the journal and sell.


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## humble_pie (Jun 7, 2009)

another preposterous piece of pedantic trivia from the pie:

even for an instant gambit using stock like RY or TD, the TD does not actually "journal" instantly.

no, that stock must stay there in the account where it was purchased until settlement day. And it does. Stay there until settlement day.

all the TD does at the time of the instant gambit is send a message to the credit department advising that the sell side order - in the opposite currency - is fine, even though it looks exactly like a naked short, which would not be fine if it were real.

of course, people "say" that the stock is "being journalled" instantly.

there are so many novice licensed representatives in discountland these days that some reps might even believe that a gambit stock is indeed "being journalled" instantly.

returning now to james4, he is one of the few in cmf with a US paycheque or regular US business income, for whom gambit trades are a regular phenom.

usually when i see something like this, i suggest BMO or roybank. At those 2 brokers, a client can gambit instantly, easily & cheaply, online, for a pair of low $9.95 commish.

james u could move your account, the Bimmer will even give you something like $250-300 in cash plus a big bunch of free trades if you have more than 100k.

i don't know if BMO's fixed income products will be to your liking, though. For HISA accounts they have a surprisingly high minimum threshhold of $5,000. I'll try to get a screenshot of their rate sheet for GIC type products & post it, it may or may not be competitive with TD & i recall that you do like the TD in this regard ...

perhaps u could find someone with an RY account to post some specifics about the joys of the same.


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## Ihatetaxes (May 5, 2010)

RBCDI makes it easy and you don't have to pick up the phone (but can just to increase confidence by having them walk you through it while you do it online). I will be doing this next week with some US cash in my non-registered account thanks to the sale of some Valeant stock.


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## james4beach (Nov 15, 2012)

Thanks for the details everyone. humble_pie, great points there...

I am starting to seriously think of moving to another big brokerage for this purpose


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## humble_pie (Jun 7, 2009)

re BMO fiixed income info, please find below a screen shot of their GIC rates as of today. James, this is just to give you a comparative idea of what they are up to!

re their in-house CAD HISA account, this is paying 1.25% right now, about the same as most other brokers.

what is unusual about the BMO product is its high $5000 initial threshhold; however a helpful representative explained a workaround.

it's not necessary to permanently maintain that $5k, he said. Instead it's possible to deposit $5000, then withdraw for example $3,000.00 to leave $2000 in the HISA. Interest will be paid upon the $2000. Subsequent deposits need only be a minimum of $500.

i suppose that would mean, for someone who wanted to be using a HISA account most of the time, never closing it. Always leaving some $$ in an established HISA, to keep it going. Because closing it totally would mean ponying up a new $5000 initial deposit if one wanted to start it up again.

it seems to work like sourdough yeast. In frontier gold rush yukon, a prospector would keep a lump of raw sourdough in his pocket, with which he'd start every new sourdough batch. Out of each new batch, he'd save a new lump to keep in his pocket ...

james4 you'd find the gambit trading to be lightyears easier than the TD. Everything online, the entire currency conversion completed in 3 or 4 minutes.


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## andrewf (Mar 1, 2010)

CanadianCapitalist said:


> DLR.U is fixed in price. DLR fluctuates based on the CAD-USD exchange rate. Therefore, when you buy DLR.U and then sell DLR, you are basically exposed to the CAD-USD fluctuations during the gambitting process.
> 
> I have done the USD-CAD gambit at TDDI. Use a liquid stock like TD (avoid low priced stocks like BBRY) and place a phone order for the journal and sell.


Is being exposed to USD/CAD exchange for a couple days the end of the world? If you're doing it at a time of normal 'mood' in the market (ie, not a panic), it's unlikely for there to be substantial swings in the exchange rate. And sudden swings tend to be in your favour, going from USD to CAD.


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## CanadianCapitalist (Mar 31, 2009)

andrewf said:


> Is being exposed to USD/CAD exchange for a couple days the end of the world? If you're doing it at a time of normal 'mood' in the market (ie, not a panic), it's unlikely for there to be substantial swings in the exchange rate. And sudden swings tend to be in your favour, going from USD to CAD.


It's your call. What I'm saying is that you are exposed to the currency fluctuation for the week or so it takes to complete the DLR.U->DLR gambit. When I converted USD to CAD a couple of years back, it was a large amount of money, so I was willing to pay a bit extra for not risking CAD appreciation.


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## james4beach (Nov 15, 2012)

This exposure (and slowness at TD DI) may not be a huge problem for me.

Strictly speaking, I'm exposed for a much longer duration anyway. For example: I get a paycheque in January, wait until February for the amount to accumulate into a large enough value, do a wire transfer (or whatever). So I'm already forex exposed for more than 30 days. The gambit at TD adds another week delay.

In other words, even if I used a brokerage with an instant gambit, I can't erase that 30 days I'm already exposed.


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## BigMFfan (Feb 23, 2013)

humble_pie said:


> what is unusual about the BMO product is its high $5000 initial threshhold; however a helpful representative explained a workaround.
> 
> it's not necessary to permanently maintain that $5k, he said. Instead it's possible to deposit $5000, then withdraw for example $3,000.00 to leave $2000 in the HISA. Interest will be paid upon the $2000. Subsequent deposits need only be a minimum of $500.
> 
> i suppose that would mean, for someone who wanted to be using a HISA account most of the time, never closing it. Always leaving some $$ in an established HISA, to keep it going. Because closing it totally would mean ponying up a new $5000 initial deposit if one wanted to start it up again.


This is what I learned today...thanks, humble_pie!


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## james4beach (Nov 15, 2012)

This reverse gambit (even at TDDI) worked out pretty well. I tried it with $4,000

Bought 400 DLR.U at 9.98 plus fees = 4001.99 USD
At conversion time, today, spot market usd/cad was 1.0966 so above is worth 4388.58 CAD
Sold DLR at 10.95 less fees = 4370.01 CAD

So the net forex fee I incurred was 4370.01/4388.58-1 = *0.42%*

I saw pretty tight spreads on both DLR and DLR.U


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## OptsyEagle (Nov 29, 2009)

james4beach said:


> This reverse gambit (even at TDDI) worked out pretty well. I tried it with $4,000
> 
> Bought 400 DLR.U at 9.98 plus fees = 4001.99 USD
> At conversion time, today, spot market usd/cad was 1.0966 so above is worth 4388.58 CAD
> ...


Sorry if I missed the original explanation of the gambit but aren't you buying one security DLR.U and selling a completely different security DLR? 

Is this not like buying SPY in the US account and moving it and then selling XIU in the Canadian account?


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## humble_pie (Jun 7, 2009)

OptsyEagle said:


> Sorry if I missed the original explanation of the gambit but aren't you buying one security DLR.U and selling a completely different security DLR?
> 
> Is this not like buying SPY in the US account and moving it and then selling XIU in the Canadian account?


no, it's nothing like buying SPY & selling XIU

there are like several books that have been written, in this forum alone, on gambit currency trading. Across years & years.

gambit trading is nothing more than plain old arbitrage. Arbitrage is hundreds of years old. You buy an interlisted security in one exchange while selling the same in another exchange, in order to benefit from opportunities such as currency movements, exchange inefficiencies or rights/warrants/options transactions.

the catch is that all the deliverables have to be the same. 

when italian explorer marco polo first reached the court of the great Khan in the 13th century, the emperor was beside himself with excitement. Because for the very first time, the emperor knew he would be able to go long silkworms in china but short silkworms in Venice.


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## humble_pie (Jun 7, 2009)

james4 what makes your transaction less profitable are the relatively high commission costs.

if you were doing $4k every 2 weeks, a questrade account might work more frugally? the only cost would be the $4.95 commission to sell DLR, after the mandatory 5-day wait.

an alternative might be to accumulate $20k, if you were to stick with the TD. That way the pair of 9.99 commish would amortize out over a greater number of dollars.

plus i didn't look up the trajectory of USD/CAD over the past 5 days but i suspect it might have been working in your favour. Remember, only DLR.U is pegged, therefore you assumed currency risk for the 5 days it took to complete the journal of the stock.

if USD strengthened & CAD weakened while you were waiting across 5 days, this would have greatly helped your gambit. However, the same currency risk could just as easily have worked against you.


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## OptsyEagle (Nov 29, 2009)

humble_pie said:


> the catch is that all the deliverables have to be the same.


I understand the concept of the gambit, I was just surprised that DLR and DLR.U are exactly the same. When a person buys DLR.U in their US account and then journals it over to their Cdn account, does the security automatically become DLR when it enters the Cdn. account?


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## humble_pie (Jun 7, 2009)

the only tricky aspect is that the CUSIP numbers have to be the same. Otherwise the shares can be easily moved between CAD & USD accounts.

the DLRs were created by horizons betaPro around 2012 specifically to cater to the gambit trade which was, at that time, getting stiffed by brokers who either insisted on 5 days to journal a stock or else some brokers were even refusing to take gambit sell side orders.

horizons' novelty with the DLRs is that DLR.U is pegged, so the party buying DLR essentially fixes his exchange rate at the moment of purchase. If he has to wait 5 days for the broker to journal his stock to opposite currency account, the wait will not matter.

however the reverse is not true, so the party travelling USD-->CAD via the DLRs & having to wait 5 days for the broker to journal stock is exposing himself to 5 days of currency fluctuation.

i don't DLR myself but occasionally, when i've looked, i've noticed the odd hi-volume trade here or there. This tells me that institutions are also utilizing the DLRs for their currency exchanges, so i'm happy for horizons' sake that there's enough interest in this useful pair.


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## richard (Jun 20, 2013)

humble_pie said:


> when italian explorer marco polo first reached the court of the great Khan in the 13th century, the emperor was beside himself with excitement. Because for the very first time, the emperor knew he would be able to go long silkworms in china but short silkworms in Venice.


That's a much longer wait than 3 - 5 days to buy and journal shares of DLR. Too bad he didn't use RBCDI where he could do that instantly!


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## humble_pie (Jun 7, 2009)

OptsyEagle said:


> When a person buys DLR.U in their US account and then journals it over to their Cdn account, does the security automatically become DLR when it enters the Cdn. account?



many interlisted securities have different symbols in canada & the US. Teck dot B is plain TCK in the US; precision drilling is PD on toronto & PDS on new york; there was old RIM/RIMM, etc. 

the symbol doesn't matter, all that matters is that the CUSIP number be the same


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## OptsyEagle (Nov 29, 2009)

Thank you, I think I see how your doing it now. Neat. 

I did always wonder who would ever use those ETFs, when Horizons came out with them, and now I know.


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## humble_pie (Jun 7, 2009)

isn't it neat?

it's really just plain old arbitrage. I remember talking about these cross-currency strategies with an experienced TD rep about 15 years ago. He assured me that most of the TD more knowledgeable clients had been arbing their currencies for years & years & years.

there are several strategies. Cross-trading options is one of them. Partial gambits - which i noticed scomac has been quietly doing on this forum ever since the forum began - are another. 

none of these strategies ever had anything to do with a gentleman named norbert schlenker. Arbitrage is timeless. I don't suppose there was ever a era when it was not utilized, in one form or another.


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## james4beach (Nov 15, 2012)

Yeah it's a neat process. But I did encounter one hiccup at TD DI. When I tried to place an online buy order in my US margin account for DLR.U (market 'CA' since it's TSX) the web system rejected my order based on currency mismatch.

I phoned in and an agent placed the same order, but her order also got killed by TD's system. Her explanation was that apparently market 'CA' assumes prices/quotes are in CAD, which isn't the case here. She called someone, placed the order again and it worked.

So I don't know if that's going to happen every time I submit an order on DLR.U whilst paying US$ out of my US margin account.


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## james4beach (Nov 15, 2012)

richard said:


> That's a much longer wait than 3 - 5 days to buy and journal shares of DLR. Too bad he didn't use RBCDI where he could do that instantly!


I'm not in any hurry since this money has a long journey on each trip anyway. The 5 day wait is inconsequential in the context of the 60+ day delay between when I get my paycheque and when I accumulate enough to do a large batch conversion.


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## james4beach (Nov 15, 2012)

humble_pie said:


> if you were doing $4k every 2 weeks, a questrade account might work more frugally? the only cost would be the $4.95 commission to sell DLR, after the mandatory 5-day wait.
> 
> an alternative might be to accumulate $20k, if you were to stick with the TD. That way the pair of 9.99 commish would amortize out over a greater number of dollars.


Good point. 4k was just a test, but I think I'll do as you suggest and let it accumulate and then convert larger chunks like 10k or 20k. That's definitely more efficient.



> plus i didn't look up the trajectory of USD/CAD over the past 5 days but i suspect it might have been working in your favour. Remember, only DLR.U is pegged, therefore you assumed currency risk for the 5 days it took to complete the journal of the stock.


I think it worked against me in this case but yes you're right, I'm exposed to currency swings. Then again I have much longer delays than the brokerage part of the activity. Getting my paycheques and letting them accumulate, the USD$ amount may sit around for a month or two before getting converted. If it's already sat 60 days in USD cash, does another 5 days stuck in DLR.U matter at all?


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## humble_pie (Jun 7, 2009)

james i've never traded the DLRs so i don't know for sure.

but truth to say, it does look like buying DLR.U online out of either canadian or US non-registered account might very well be impossible on the big green web platform.

you may have to always place the buy order in DLR.U through a licensed TD representative. They should be charging you a web commission, though; be sure to confirm this each time you set up the gambit trade.

all the more reason to power up to a $15k gambit turnaround!

if you had a large inventory of dollars to exchange frequently, normally i'd suggest BMO or roybank; but i'm mindful of how much you like the TD & how you have everything nicely set up there. 

btw the canadian currency ETF is FXC. It has short-term options, at present going out to sep/14. Perhaps you'd want to study these entrails so as to develop a feel for short-term direction in USD/CAD?

more usefully, here is a bloomberg interactive chart for FXC with short-term settings such as one week or one month. As mentioned upthread, you will have a 5-day currency exposure when you travel from DLR.U to DLR. You could use chart indicators such as RSI to help form a short-term currency forecast, whenever you get ready to exchange your hard-earned US dollars.

http://www.bloomberg.com/quote/FXC:US/chart


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## james4beach (Nov 15, 2012)

humble_pie said:


> it does look like buying DLR.U online out of either canadian or US non-registered account might very well be impossible on the big green web platform.


This still seems surprising to me. What about the other TSX securities with US$ symbols, like for instance the Royal Canadian Mint's gold shares (MNT, MNT.U) or Central Fund of Canada (CEF.A, CEF.U)... there is significant volume in these things, can one not trade any of them online with TD?

I did get the web commission rate, by the way.



> if you had a large inventory of dollars to exchange frequently, normally i'd suggest BMO or roybank


I'm still considering these options. TD has been good to me though, so I'll see if the experience at TD frustrates me enough to bother opening another account elsewhere



> btw the canadian currency ETF is FXC. It has short-term options, at present going out to sep/14. Perhaps you'd want to study these entrails so as to develop a feel for short-term direction in USD/CAD?


Yeah it may be good for me to start looking at charts of this currency pair more often


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## james4beach (Nov 15, 2012)

Another reverse gambit using bank stocks with the help of a friendly TDDI rep who charged web commission 

Buy 300 US:TD @ 38.36 total cost $11,518 USD
Sell 300 CA:TD @ 50.52 net proceeds $15,146 CAD
*Effective FX rate: 1.31499* mon dieu!!
Spot mkt FX rate: 1.316

Thus the *conversion fee is 0.08%* ... the lowest I've had yet. I saved $172 versus TDDI's foreign exchange


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