# Currency Conversion Woes: CAD -> USD



## eddieparker (Jun 18, 2009)

Hello!

I'm curious if anyone can recommend any good options for currency conversion. I've recently moved to the States and the proceeds of the sale of my home will need to be converted to USD, and I'd like to maximize what I make in the trade.

I've investigated using Questrade (they've offered me a .5% fee, which sounds good, particularly compared to banks), and Firma which can't give me a real decent answer on how much I save (alluding that I can get as much as a 1%-5% less than the banks offer me). 

I tried to pursue forex at Questrade but they seemed to indicate that I should use their currency exchange in lieu of this route - is that right? Is there a way I can do this on my own using solely forex? That sounds like the route with the smallest fees, unless I'm mistaken?

I'd love any advice, opinions, or rants. 

Thanks!

-e-


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## stephenheath (Apr 3, 2009)

I can't think of the name of the maneouver so can't search on it, but I think you can basically just buy a stock on the CDN exchange that is listed on both exchanges that you don't think will move too fast, then sell the stocks on the USD exchange for USD, and convert it free other than the cost of two stock transactions as long as the stock doesn't move.

EDIT: And of course the way things are, as I move down the page theres a thread that titles it Norbert's Gambit...

http://www.canadianmoneyforum.com/showthread.php?t=8459 has more detailed information than I can give you.


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## CanadianCapitalist (Mar 31, 2009)

You could try a dedicated forex specialist such as Knightsbridge if you are not comfortable to DIY. I was told that they could convert currency for 0.50% or less.

http://www.knightsbridgefx.com/

FD: No affiliation.


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## HaroldCrump (Jun 10, 2009)

Proceeds of a home sale...hmm...likely to be a large amount, no?
Esp. gosh if you happen to live in Vancouver or Toronto.
In this case, it might just be better to go with a fixed rate conversion through your brokerage or bank, rather than attempt the Norbitt Gambit.
The amount is likely more than $250K, no?
That's helluva lot of stock to buy.
And given how volatile the stock markets are these days (+/- 4% moves each day), you could lose a lot of money within seconds.

I wouldn't do the Gambit in this case..just IMHO


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## eddieparker (Jun 18, 2009)

I forgot about the Gambit. Hrmm, that might take a bit of research on my part - has anyone done it with Questrade in recent times? It sounds simple enough and error-free, as long as Questrade doesn't have issue with it.

if I understand correctly:

- Buy a cross-listed stock on the TSE
- Simultaneously short the US version of the stock
- Get Questrade to move my TSE based stock over to my US account, thereby negating my owed shares on the US side.

That should be risk free, so long as I short at roughly the same time as I buy, yeah?

Hrmm. Now to play with numbers and see how much that saves me.


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## slacker (Mar 8, 2010)

I think it's all the more reason to go with a proper non-registered taxable trading account Nortbert's Gambit. With short selling and all.

I just converted $20k CAD to USD. It cost me $10 in bid/ask spread, and $10 in trading fees in total. I completed the trades in less than 10 seconds apart.

I think it's a safer option than the forex "experts", where the risk of losing thousands of dollars is 100% guaranteed.

PS: is there interest on the short sell? Questrade charge about 4.5% / year on interest for non-registered accounts. So assuming you are trasnferring 300,000, assume they charge you interest for the 3 days it takes the stock to settle, the interest cost would be about $110. Still way better than what the forex expert is giving you.


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## humble_pie (Jun 7, 2009)

no, one cannot buy & short in another exchange. There are rules against "shorting the box" that go back to the 1930s. All brokers respect these rules. Cannot go long & short the same stock at the same time. Certainly not at the same broker.

questrade should not be shorting the box. If that's what they're doing, someone should wake up their compliance department.

there is a short of sorts in a true gambit, but it doesn't show up in the broker's short record. Basically the cross-listed stock gets sold out of a margin account even though it isn't there. In that sense, the "short" side of a gambit is akin to a naked short.

there are 2 trading platforms that are known to be capable of handling gambits instantly & seamlessly. They are bmo & roybank.

other trading platforms whose policies are well known are td waterhouse (need to phone for the sell side & pay agent-handled commish, or else wait 3-5 days for settlement + journal of the interlisted stock) & scotia itrade (need to wait 3-5 days for settlement + journal)

parties intending to gambit should have experience in pair trading & should study the by-now copious literature on the technique. There are several key articles on Canadian Capitalist's blog. There are many helpful messages & threads throughout this forum.


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## eddieparker (Jun 18, 2009)

Sorry, I likely used the wrong terminology.

From what I understand I'm actually using *margin* to sell - so I'm not actually shorting, I'm just telling Questrade that "put this on my tab" and paying them back with stocks actually purchased on the TSE.

Allowing that's correct, I did a quick spreadsheet using DLR-U.TO (ETF tracking USD, held in USD) and DLR.TO (ETF tracking USD, held in CAD), and I'm curious if I've done something wrong with my numbers.

I've done the following:

The givens:

Commission: $10
CAD to exchange: $100,000
Current USDCAD Exchange Rate (at time of writing): 0.99025
Ideal result of exchange (using above exchange rate): USD$100,984.60

Stock Variables:

DLR.TO Ask price: 9.88
DLR-U.TO Bid Price: 9.99

Given this, I could purchase 10,120.45 units of DLR.TO ( (C$100,000 - C$10)/C$9.88).

I'd simultaneously, on margin, sell 10,120.45 units of DLR-U.TO at the bid price of USD$9.99 and fetch USD$101,093.25 (10,120.45*USD$9.99 - USD$10).

Allowing all that makes sense, the part I'm confused about, is that my Norbert's gambit puts me at a much more favourable result than my ideal (Norbert: USD$101,093.25, versus "Ideal": USD$100,984.60, a difference of USD$108.65 in Norbert's favour!).

I'm wondering if someone who's interested in this sort of thing can spy what I've done wrong. It'd be appreciated, as i'm trying to figure this process out before I pull the trigger. 

Also, in comparing this to the 0.5% that Questrade's currency exchange department quoted me, that 0.5% they quoted is off the whole transaction, yes? So the CAD$100,000 transaction would be traded at whatever their spot price is (.99025 as above), AFTER having 0.5% deducted? (So CAD$99,500 would only be available for conversion, leaving me with USD$100,479.68, all told?)

Thanks for helping me through this, everyone. Super informative stuff.


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## NorthernRaven (Aug 4, 2010)

When I was looking at potentially converting a large sum to USD last year I briefly checked with Knightsbridge (but I have not used their service). I'm assuming you are looking at $150K or more since it is the proceeds of a house, and they indicated they could probably do large (6 figure) amounts for 15-30 basis points; you could check with them for current info. I'd assume XE would be in the same ballpark?

If you go this route, look into the transfer methods. You can do "bill payment" transfers with Knightsbridge, but that wouldn't be feasible with huge sums. They didn't seem to eager to try an EFT transfer (I have an account with Hubert that allows an arbitrary bank-transit-account destination), and would probably recommend a wire. Big-5 banks can charge $80-135 for wires of this size! XE.com seems more friendly in this regard and has info on setting up pre-authorized EFT.


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## NorthernRaven (Aug 4, 2010)

eddieparker said:


> Sorry, I likely used the wrong terminology.


I think you are still confusing things - if you sell DLR you just bought, there is no margin involved. The problem is that you are selling it as DLR.U, which systems like TDW can't do without some sort of manual intervention and/or waiting for settlement (but apparently BMO and RBC are better). I don't know about Questrade. The shorting example involves selling short an interlisted stock you *don't* own, then closing out the short position with its counterpart. With TDW margin accounts, you can't "buy to cover" from the opposite exchange (for something like RIM/RIMM), and while you can try to buy and have them journal over to close the short position, TDW *strongly* frowns on this; presumably because as humble_pie mentions it looks like two separate positions and a "shorting the box" situation. 

BTW, in your example, it looks like you might be taking the current (sometime Saturday) exchange rate, but the Friday afternoon DLR closing prices, which will make your numbers unreliable.

Buying DLR effectively locks you in at the ask rate, minus 10 basis points (since you sell at US$9.99 instead of $10) and trading costs. So if you buy at $9.88, that is equivalent to an exchange rate of 0.9890 + $20 bucks for the trades. There is no rush to sell it - you'll always be getting that same US$9.99 price. The only question is how close the DLR ask price is to the actual exchange rate at the time.


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## slacker (Mar 8, 2010)

Be mindful of the bid/ask spread when using DLR. Since it doesn't have high volume, the bid/ask spread could potentially make alternatives like XE.com more favourable.


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## NorthernRaven (Aug 4, 2010)

Going from CAD to USD, the only consideration is the ask price of DLR (assuming the DLR.U bid is $9.99, as it always seems to be). I did a trade with DLR.U awhile back, and as best as I could tell the DLR ask seemed to track USD/CAD as well as could be expected (as Horizons indicates, it "seeks to reflect the price in Canadian dollars of the U.S. dollar"). If so, the cost is the 10 basis points built into the DLR.U bid price (plus any fractional difference between the exchange rate and the DLR ask, since the latter can only move in penny increments), and the spread between the DLR bid/ask isn't a consideration. Worst case should be under 20 basis points, and I doubt that XE/Knightsbridge is going to beat that.

Also, if DLR's ask price _is_ reflecting the exchange rate, the normal 2 cent spread seen on DLR would mean the reverse USD->CAD (buy DLR.U, sell DLR) would be more expensive: there would be 10 basis points from the $10.01 DLR.U ask, and 20 more from the DLR bid spread.


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## humble_pie (Jun 7, 2009)

there are a number of details in this thread that are flashing an amber warning light.

first, if the OP is truly living in the US he would normally no longer have a domestic canadian account at questrade or any other canadian broker. A large & peculiarly-structured trade such as a 100k gambit, from a client who never had this trading history, could flag a manual review by the broker, which is when details like current country of residence would surface.

secondly, to the best of anyone's knowledge, questrade is not a broker at which a gambit can necessarily be carried out instantly & seamlessly. There is one recent claim to this effect, but the few details supplied are not reliable (a gambit does not involve a formal short sale because of the don't-short-the-box rules.) In addition, the questrade gambitter was asked to provide more details but failed to answer. Therefore, nothing further is known.

in addition, questrade is notoriously poor with respect to customer service, so there would be no support for a gambit trader who got halfway through his manoeuvre & then ran into serious problems. For all these reasons & more i for one would not dream of attempting a large gambit at questrade.

thirdly, if the OP is not an experienced pair trader he should not be attempting, as his maiden effort, a currency conversion of this size through a complex gambit strategy. At the very least he should carry out 2 or 3 small practice gambits to make sure he has identified all the possible glitches.

lastly, although the most conservative gambit approach would be the DLR/DLR.U combo, there might be a problem with the quantity. A 100k purchase means 10,000 shares. I would worry that the fund manager - who would know what is going on as soon as the opening trade was done - would immediately adjust the fund position; and this might mean that the B/A in the opposite currency would widen or become less favourable. In addition, there is the issue of the questrade commission; how do they calculate commission for more than 500 shares.

all in all, xe.com looks worth investigating, since Raven notes they can handle EFT. If this is true, and if their fee would be less than the 0.5% already available at questrade, it might be an easier route to go.


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## HaroldCrump (Jun 10, 2009)

Is $100K the actual amount or merely an example used by the OP?
If the amount is larger, the gambit can be dangerous.
Markets are going to be quite volatile, esp. with the Fed meeting coming up next weekend.
We are seeing +/- 4% moves on both the TSX and NYSE within a day.
You could end up losing a lot of money within seconds if the market drop by couple of hundred points while you are in the middle of the gambit.


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## m3s (Apr 3, 2010)

humble_pie said:


> all in all, xe.com looks worth investigating, since Raven notes they can handle EFT. If this is true, and if their fee would be less than the 0.5% already available at questrade, it might be an easier route to go.


XE is tiered so for 100k+ OP should be able to get a good rate anyways. One problem with EFT is that your "big 5" will likely not allow you to EFT over $100k at once

1) Call your bank and get the limit 2) Call XE and get a quote for the conversion. Make sure you don't move like $99k when there's a better rate at $100k etc 3) Tell them it will take x days for x EFTs to be processed (For XE you actually make EFTs by making bill payments to Custom House)

Once they get the final EFT, they will convert the funds at the pre-negotiated rate


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## slacker (Mar 8, 2010)

@OP: There are a lot of people with an ax to grind against Norbert's Gambit and Questrade. You need to do your own research and be confident what you are getting into. Posters like humble have accused others of non-specifics yet had offered similarly vague criticisms on Questrade.

In the end it comes down to how much it cost, what are the expected trouble/risks, and whether you can live with it. Market volatility does not factor into a Gambit on a non-registered account.

On questrade, I've documented that it cost a total of $10 in bid/ask, and $10 in trade fees. I short sell on the USD margin non-registered account (aka borrow NYSE:RY shares from Questrade to sell and get $USD back), and within seconds buy TSE:RY on CAD non-registered account with cash. Now, you have converted your CAD into USD with seconds. You will suffer the bid and ask spread by the market. You will also suffer the market volatility during those seconds between sell and buy. It took me about 10 seconds to complete the second transaction. Immediately after you have completed the transaction, your exposure to the market has ended. At that point, I still owe Questrade some NYSE:RY shares, so I just called them a few days later to convert my TSE:RY shares to my USD account at no cost, and then cover what I owe Questrade.


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## humble_pie (Jun 7, 2009)

really slacker ? questrade allowed you to short the box ?

oh, my.

the iiroc, the osc & the tsx should definitely look into this ...


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## slacker (Mar 8, 2010)

They allow it on TDWH too. This is long against the box, not short against the box. In any case, it is not forbidden, it just generates a taxable event (as it should). If you have any specifics on regulations rather then hear-say, I'd like to see it.


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## NorthernRaven (Aug 4, 2010)

slacker said:


> They allow it on TDWH too. This is long against the box, not short against the box. In any case, it is not forbidden, it just generates a taxable event (as it should). If you have any specifics on regulations rather then hear-say, I'd like to see it.


It may _slip through_ at TDWH, which is not the same as _allowed_. If the "sell short/ buy long in opposite currency" trades come to the attention of compliance, they will not be happy. I've never been able to find an authoritative discussion as to whether it _should_ be possible to cover a short position with the same stock in a different currency, but the TD systems can't handle it, and they don't like the workaround.


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## NorthernRaven (Aug 4, 2010)

I'd second the notion doing the simplest transaction possible - if you can get a rate you can live with, avoid large gambits unless you are very comfortable that you know what you (and your broker) are doing. 

When I was checking around at the end of last year, TD Waterhouse seemed to offer rates that worked out around 0.3-0.35% for amounts over $100K. If the OP is an established Questrade customer, perhaps they could be persuaded to do better than their posted 0.5% rate on such a large sum. Also, I don't know which bank the house proceeds are going to start out in, but perhaps a similar rate could be negotiated by a good customer. Worth checking, at least, especially if you are armed with competitive quotes from elsewhere.

For XE, I know nothing other than what I see on their website. However, the "bill payment" method is a separate option from the "preauthorized EFT" option, where you give them your banking details. The latter would probably be easier, since there can be daily limit amounts on bill payments at some banks, and you might have to spread the transfer into an unwieldy number of days.


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## humble_pie (Jun 7, 2009)

td waterhouse does *not* allow shorting against the box trades of the type described by slacker. 

although a pair of such trades may slip through the tdw online trading platform the first time, the ever-vigilant tdw credit department will have picked out the offending pair by the following day. The client will be asked to repair his position & warned not to take similar trading action in the future. His entire account may be placed under a red flag so that each & every online trading transaction gets sent to a representative for review.

if he persists in trying to short the box, additional restrictions will be imposed.

questrade should have similar compliance procedures in place. If they do not, or if they are sloppy about the same, the securities authorities should review the compliance situation at that particular brokerage.

as for the no-shorting-the-box rules, these are universally known & practiced by all brokerage houses across north america, and have been so practiced for many decades. They are set forth in the canadian income tax act & its modifications over many years as well as the US securities act & its modifications. A novice investor who does not understand how or why these rules are enforced should inquire at his broker. He will not find, anywhere in north America, any licensed brokerage in good standing that will knowingly short the box.


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## Sustainable PF (Nov 5, 2010)

CanadianCapitalist said:


> You could try a dedicated forex specialist such as Knightsbridge if you are not comfortable to DIY. I was told that they could convert currency for 0.50% or less.
> 
> http://www.knightsbridgefx.com/
> 
> FD: No affiliation.


I used KB when I imported our Subaru but the rate was close to 0.80%. July 2010.


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## NorthernRaven (Aug 4, 2010)

FWIW, looking at DLR today and previously, whenever I compare DLR ask and DLR.U bid (always $9.99), the transactions are usually competitive with interlisted stocks such as POT or TD. The DLR ask price matches to whatever "live" fx rates I can find (XE, fxstreet, forexpros), and the fractions often seem to round out in favour of the DLR purchase. Even ignoring whatever the spot rate is, dividing the $CAD ask price by the $USD bid price for DLR, POT and TD (obtained simultaneously from TDW's system), DLR seems competitive, and since you don't run the risk of DLR.U changing price between the two trades, may even work out better. 

POT today was occasionally showing 2-3 cent bid/ask spreads on the US side, even on volume of 5 million. With DLR, you've got a known 1 cent cost selling the DLR.U, and it seems you are just as likely to do a bit better than a bit worse, depending on which side of the actual rate DLR's price falls. Especially in volatile times, eliminating market risk of two trades in another interlisted stock could be desirable.

Even though trade volumes on DLR/DLR.U are pretty low (only 200 shares of DLR traded by late afternoon today), it looked like DLR was locked on bid/ask sizes of 100 today. So if I'm reading that correctly as 100*100-share board lots, that's almost $100,000 of minimum trade liquidity Horizon's market maker is providing (the DLR.U side is way above that).


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## ddkay (Nov 20, 2010)

I want to convert some loonies to greenback, but there was no volume on these ETFs today so it seems like it was a bad time to do it.

DLR CA T Bid 9.84 Ask 9.87 Last 9.90 Change 0.00 (0.00%) Volume 0
DLR.U CA T Bid 9.99 Ask 10.01 Last 9.99 Change 0.00 (0.00%) Volume 0

Sorry to repeat but if I understand this right, I would buy _n_ shares of DLR with a limit order on the bid price then immediately after its filled sell the same _n_ shares of DLR.U with a limit order on the bid price, and the CAD to USD conversion is complete?

I keep reading trades like these need to be "journaled", what does that jargon/process mean exactly? Does a gambit really take 2 days at TDW or is there a way to get it done faster and avoid currency risk?


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## humble_pie (Jun 7, 2009)

little bear, here's the article i pointed you to earlier (figured out how to enlarge addy bar). Reading it is almost obligatory.

http://www.canadiancapitalist.com/a-foolproof-method-to-convert-canadian-dollars-into-us-dollars/

the only way one can do an "instant" gambit sell at tdw is to phone a rep, but to do instant they will charge the representative-handled commish. This is the expensive express jet. Notice, though, that one can buy online & only needs the rep for the sell side.

dlr/dlr.u gambits are carried out entirely online with 2 cheap online commish but they take 4-5 days. This is the low-cost slow local bus.

fortunately, dlr.u tends to remain stable at 9.99.

limit orders both directions. Somewhere CC has published that horizons betapro has engaged to maintain a market even though volumes are low. At least for now.


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## NorthernRaven (Aug 4, 2010)

@ddkay - DLR/DLR.U often have very low volumes, but most often the "ask size" is 100, which I interpret as 100 board lots of 100 units each, or 10000 units, which is close to $100,000 of liquidity. This is presumably the market-making that CC and Humble have referred to. Since DLR is for most purposes "money", this can probably be treated as an fx exchange drawer rather than a pile of uncertain stocks by their market maker.

When you buy DLR, you are effectively locking in your exchange rate right then, and eliminate currency and trading risk. There is no rush to resell right away - unlike with an interlisted equity stock, which is going to vary in price, DLR.U is effectively pegged at US$10, and the bid price you'll sell at should always be $9.99. So you can buy DLR, wait 3 days for it to settle, call TDW to journal it to the US side, and sell as DLR.U. I haven't done this one myself, but presumably there is no valid reason for TDW not to do the journal after settlement. I _have_ done this in my TDW RRSP, and there you can do everything yourself, and without waiting for settlement - I bought DLR on a Tuesday and sold it the next day as part of a wash trade, without any intervention from TDW; the RRSP systems are apparently slightly different. Supposedly easy DIY method is available with BMO and RBC brokerage accounts as well.

Personally, I would now use DLR in preference to the other methods, unless I had some desperate need for the US proceeds before the ~5 business days it would likely take for the slow local bus to let you sell the DLR.U. Every time I run the numbers it compares quite well to using an interlisted equity.


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## ddkay (Nov 20, 2010)

humble_pie and NorthernRaven thanks so much for your replies, I didn't know you could lock in an exchange rate by simply purchasing DLR, if that's the case I don't really mind the wait


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## atrp2biz (Sep 22, 2010)

I just tried gambitting at TDW to convert CAD to USD. First I shorted in my US short account and then bought (not to cover) on my Canadian margin account. 

I called to journal the trade, but they said they would not journal unless I was charged full commission on one of the trades. I did both trades online. I told them to not do anything as of yet.

Anyone have any experience with this? I know that they would charge full commission for broker assisted gambits, but I don't really think this is broker assisted--I just want to journal after the fact. Any thoughts?

EDIT: Should I just wait for T+3 and ask to journal then?


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## humble_pie (Jun 7, 2009)

salut atrpdoc biz

rushing by & don't have time to research out all the links for you but this strategy you've done has been fully discussed right here in cmf forum 

& sadly this is not the way to do it. 

another poster just days ago posted how he had shorted first at tdw & was reprimanded, told never to start by shorting first, etc.

i've also posted several times over at least a year that td won't accept shorting first. Yes i know it works fine in the web trading platform. But they'll catch the trades fairly quickly - in this case you approached them & disclosed - but their monitors would have picked up the crossed position which they regard as shorting the box which they don't permit.

the next step they have up their sleeve for clients who keep on doing this despite reprimands is to start restricting the account.

here's my suggestion just for you, doc. You're probably a good client. Contact them & explain you know that you made a mistake. Ask them to help you out by journalling to settle in the destination currency account. Tell them you won't do this again. Be prepared to pay agent-handled commish on at least one side.

the RIGHT way to gambit at tdw is either slowly online via DLR & DLR.U or else by stick-handling a fast gambit yourself. There are many articles on how to do this at tdw in both cmf forum & on CanadianCapitalist blog.

in the fast gambit in non-registered account at tdw, client must:

- line up the pair trades in as stable an environment as he can find;

- prepare the buy side order for the stock he wants to cross in CAD on toronto in canadian account but don't push the Send button;

- contact a tdw representative & make sure the rep understands what client intend to do. Rep will begin to set up the US sell order in client's US margin account (NOT the short account) while preparing to instantly transmit this sell order as soon as the buy side has been filled;

- client sends buy order;

- as soon as he sees the canadian fill, tdw rep will instantly transmit sell order onwards to appropriate US exchange. If a market order, it will be filled. Notice that the shares are NOT yet in that US account because they must settle first in canadian account which takes 3 days.

- in this gambit strategy, no shares are formally shorted. There is no need to consult the Loan Post. Most importantly, the sold shares do not appear in the broker's aggregated overnight short reports;

- tdw rep must then send a special hand message to credit dept advising them that this peculiar trade is nevertheless valid & the journaling will be done 3 days hence. Credit in turn has to take special steps. My sources whisper that credit has been known to complain. All this is a huge bother to tdw & rightfully they have decided to charge clients who want to gambit live an agent-handled commish on the sell side;

- that's how it works in non-registered accounts at tdw. Clients who want to gambit both sides online in non-registered should use DLR & be prepared to wait 4-5 days.

(signed)

pie who has given numerous citations in the past & is baffled why folks just don't seem to want to understand ...


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## atrp2biz (Sep 22, 2010)

Humble,

From what I've researched, shorting first prevents shorting against the box. Instead one would go "long against the box".

I'm basing my methodology from comments from CC's blog.

http://www.canadiancapitalist.com/save-on-canadian-dollar-to-us-dollar-conversions-and-vice-versa/


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## humble_pie (Jun 7, 2009)

no, i don't believe that is CC's methodology.

what's i've observed is that CC always publishes accurate information.

what i've always posted - for nearly 2 years now - is top-notch info. It does work.

i've made a decision not to get into discussions on the righteousnness of it all, because these discussions go nowhere. Parties who wish to debate aspects of gambitting should discuss with their broker.

for my part, i know what i'm doing & i'm happy to share, but that's it 

hope you will understand.


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## atrp2biz (Sep 22, 2010)

Note that I said comments, not from CC directly. 

I've done the short first method without incident in the past. But the recent change at TDW allowing over the phone gambits seems to have emcompassed online gambits as well (where full commission would have to be paid). I was given the option of paying the full commission to journal, but have elected to postpone journaling until after settlement.


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## humble_pie (Jun 7, 2009)

PS atrp.biz i think an unnecessary problem is arising because you are studying the comments on CC's blog.

while i am referring strictly to CC's own articles which he writes himself. These are, imho, impeccable.

the problem is that many of those 3rd party comments are, alas, wrong. To my surprise & dismay, gambitting has turned out to be an issue where a number of folks seem to want to argue instead of learning how to do it in pleasant collaboration with their broker.

may i add that the reasons for the various broker trading protocols are the different mainframe systems they utilize. There are 2 in principal usage in canada. TDW leases one of the best, ibm's ism system, but it does not lend itself to software that can support instant gambitting. Hence the necessary manual intervention by tdw representative.

other brokers such as bmo & roybank lease rival system adp, which does allow these brokers to build trading platforms that permit instant gambitting.


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## CanadianCapitalist (Mar 31, 2009)

@ddkay: I often covert USD into CAD using DLR/DLR.U. Like humble and Raven explained, it is a slow route and will take you to your destination in 1 week but all you will be paying are 2 stock trades plus 2 cents in spread per DLR (approx. 20 basis points based on current rates plus $20/$60 depending on your commission schedule). 

The volume can be very low but you should have enough bids/asks. HBP assured me that they'll do their darnest to keep bid/asks tight and if not to let them know. Like Raven pointed out there are typically 100 bids which works out to $100,000. That's plenty for me and likely to remain that way for a long long time 

Do make sure that the spread is tight (2 cents between the bid/ask) when you are putting in an order. I haven't seen it any different but I hear sporadic reports of wider spreads. 

@atrp2biz: If you want an instant gambit in a TDW investment account, here is the right way to do it courtesy of a CMF member:

http://www.canadiancapitalist.com/instant-norbert-gambit-for-all-td-waterhouse-investment-accounts/

And yes, you'll be charged one phone broker commission, so you need to make sure that the conversion value is high enough to save you money.


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## NorthernRaven (Aug 4, 2010)

CanadianCapitalist said:


> all you will be paying are 2 stock trades plus 2 cents in spread per DLR (approx. 20 basis points based on current rates plus $20/$60 depending on your commission schedule).


CC and I slightly disagree on the cost calculation. I've pulled live quotes for DLR ask, and CDN ask/US bid for gambitting equity pairs such as POT/RIM/TD. Almost always the DLR trade is competitive with the others, and rather less than 20 bps. Since you aren't selling DLR (you sell DLR.U), the Canadian bid price and spread are academic; what you are interested in is the spread between DLR's ask and the spot rate for the USD/CAD pair. Whenever I've checked this it appears that the DLR ask price is tightly tracking the exchange rate, which isn't surprising since this is the stated intention of DLR. The rounding fraction even seems to work out in favor of the DLR purchaser, more often than not. 

This would make sense, as the market gets its cut (that 20 basis point spread) when a DLR holder sells it (as DLR). The amount going one-way CAD-USD is probably a small minority, and there is still the 10 bps cost in that $9.99 bid price for DLR.U, so they don't mind effectively acting as a low-cost forex bureau. If the DLR price straddles the exchange rate, the DLR purchase spread would be plus/minus 5 basis points, so the total buy/sell spread could potentially be in the 5-15 range. In some cases it could be even a couple ticks better than that (I saw DLR at 9.95 when the rate was supposedly at 0.9960), but it is very hard to compare that precisely to a simultaneous live exchange rate. The difference in dollars isn't much, but if you are planning to use an equity pair "because the spreads are better", you really should look closely.

This is just my take, and I'd be happy to get confirmation or correction from somone who knows more. Also, if this is correct, going the other way is more expensive. There is 10 bps buying DLR.U at $10.01, plus the 20 bps selling as DLR, along with any fractional rounding inherent in the DLR price. So the USD->CAD spread is probably more like 25-35 basis points.


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## atrp2biz (Sep 22, 2010)

I noticed that too this afternoon. DLR was being offered at 9.95 when USD/CAD was at .996 or so. If you hit the bid at the U side at 9.99, the trade converts to .996 which was spot. It was puzzling as to why the MMs didn't move.


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## CanadianCapitalist (Mar 31, 2009)

NorthernRaven said:


> CC and I slightly disagree on the cost calculation.


I stand corrected Raven. While I compared DLR/DLR.U with the exchange rate quoted by TDW for a retail currency conversion, I did not look into how closely DLR tracks the actual spot rate. I based my 20 bps estimate on the 2 cent spread that DLR & DLR.U trade at over a roughly $10 value. Your analysis is more nuanced than mine and I wonder if your findings mean that using DLR/DLR.U is much cheaper for CAD->USD and an instant gambit with interlisted stocks would be better for a USD->CAD conversion (depending on the dollar amount, of course).


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## humble_pie (Jun 7, 2009)

CC i've thought so ever since my poor limited brain grasped that DLR.U was fixed while DLR was not. Alas i fear that travelling cad->usd is stable enough. But travelling usd->cad opens gambitter up to currency risk during the 4-5 days of the trade.

raven you are the expert here, i'm tentatively thinking that currency risk over a 5-day time frame would likely be less than risk of trading pot or td within 5-minute time frame. Generally speaking. Could you possibly share how you view.


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## NorthernRaven (Aug 4, 2010)

humble_pie said:


> raven you are the expert here, i'm tentatively thinking that currency risk over a 5-day time frame would likely be less than risk of trading pot or td within 5-minute time frame. Generally speaking. Could you possibly share how you view.


I'm just a programmer who enjoys the occasional research problem, and understanding the details of things I get hooked on - I'd actually consider someone comfortable with options and collars and details of back-end mainframe implementations more of an expert... 

I hadn't actually considered the USD->CAD direction any further than the higher "commission" type of cost - that 35bps or whatever. That doesn't really change no matter how long the time between buying DLR.U and selling to DLR. But since you have to commit to buying the DLR.U in advance, you are basically assuming that you think the exchange rate at T+5 will be acceptable to you, or you are willing to hold the DLR.U until it is. 5 days is a lot of time for $C to spike and decide not to come back for awhile, and my crystal ball tends to be cloudier than that!

Given the cost and uncertainty, I'd probably look a lot harder at using an equity pair like POT going in this direction, even with a higher commission (although anything that involves coordinating with TD on the phone gives me pause). I'd guess though that repatriating $USD is much less common for Canadian investors (certainly couch potatoes), and would be done in larger chunks, so the extra commission wouldn't be an issue. Perhaps CC can convince Horizon to create a reciprocal fund (a hypothetical CAD/CAD.U), or get the CurrencyShares FXC fund interlisted on the TSX...


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## NorthernRaven (Aug 4, 2010)

Just as a hypothetical for you trader gurus, could you sell short an equivalent amount of FXC (which tracks $CDN) at the same time you buy DLR.U? Might that not lock in the exchange rate? You'd either need or wind up with a small excess of $US dollars when you closed the position, you'd still have the asymmetrically higher cost of DLR.U->DLR, I don't know how FXC tracks, and I wouldn't do it myself, but it makes for a fun Rube Goldberg _gedankenexperiment_...


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## humble_pie (Jun 7, 2009)

rube goldbergish but i think you may be onto something.

in reality probs would be that a) most retail investors wouldn't understand or do this & b) too much trouble for retail-sized transaction, ie less than 100-250k. It adds an extra 4th trade to what is already a fast-paced string of 3 (buy US, sell canadian, buy new canadian investment ... & now add short fxc.)

i for one am not against the tdw agent-handled commish for the sell side of an instant gambit because i recognize that the transaction is indeed extra work for the broker. A gambit sell done by phone is far more trouble than a plain sell done by phone, if one stops to think about what's involved.

a hint that might help when doing a fast tdw phone gambit travelling USD->CAD is to utilize a high-priced security so as to have as few shares as possible (commish will include base charge plus per share charges.) At the same time client must be careful to utilize a large cap that is both quiet & liquid in both markets, so as not get squeezed by a big B/A spread. I think that TD bankitself is a fairly good candidate.

again, hoping not to be too repetitious, clients requiring frequent gambits could maintain accounts, or at least backup accounts, at bmo or roybank, where seamless gambitting can be done online.


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## NorthernRaven (Aug 4, 2010)

Actually, I think my idea is a bust; instead of locking in the exchange rate, you are actually short $C (with FXC) and long $US (with DLR.U), making it a doubled bet on the $US, not a flat position. If the Canadian dollar goes up, you lose on FXC short, and get fewer Canadian dollars for the DLR.U you bought 5 days earlier, since DLR's price will drop. If $C goes down you win on both positions. But it is the $C going up that you want to protect against, so this doesn't help. This is why I'm a programmer and not a trader... 

You could sell short DLR, and buy DLR.U. Wait for the DLR.U to settle, have it journaled, then simultaneously sell it and close the short position. Whatever you lose on DLR falling you gain on the short. There would be no journalling of unsettled stock, and the journaled stock wouldn't be used to cover the short position, so this is would be a bit different from a normal short gambit, but I suspect it would still incur the wrath of TD's compliance (and humble_pie)!


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## Charles Dickinson (Aug 10, 2011)

CanadianCapitalist said:


> You could try a dedicated forex specialist such as Knightsbridge if you are not comfortable to DIY. I was told that they could convert currency for 0.50% or less.


Have you used that before too? I just wonder if they are really a good currency converter.


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## blin10 (Jun 27, 2011)

i do this alot, if you use rbc just buy RY on nyse and sell RY on tsx, don't need to call anywhere it's all on auto, very easy.... save a ton of $ like that with big transfers


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