# Norber't Gambit: USD->CAD Questrade



## tankers (Nov 1, 2016)

Hi all,

I'm new to this forum and joined because I've been trying to figure out the correct way to do Norbert's Gambit, and have been reading tons of threads here about it. Unfortunately, everything I am reading seems to be either really old, is about converting from CAD->USD (I want to do the reverse), or doesn't actually answer my questions. So I've registered in the hopes of getting these things straight and current!

I've found a number of nice links, both here on the forum, and externally, that talk about doing the Gambit, and there is even a nice video by MoneyGeek that shows how to do it (unfortunately, it was made in 2013, and Questrade has changed their interface, and it was also made for going CAD->USD).[0]

There seems to be different discussions about the Gambit swirling around. So I'll take them one by one.

First, which stock to use? Most people talk about using DLR.U/DLR.TO for buying and selling. Some people seem to suggest that going from USD->CAD it isn't a good idea to use this co-listed stock, although I don't understand why. Some people think that using TD's co-listed stocks are better, but it seems like there can be a big swing in the price while you are waiting to journal. What do people think now, at the end of 2016 about which stock to use for this, and why?

Speaking of journaling, it sounds like some trading platforms allow you to do this more or less instantaneously, but Questrade requires that you either call, email, or chat with someone to ask them to journal the stock, then you wait for three days. Presumably, this is still true?

Should I use a Margin order, or a Limit order? The video I reference uses a Margin order, but the Norbert's Gambit for dummies says that you should use a Limit order (but again, both of these are talking about going from CAD->USD, and I need to go the other way). The arguments for a limit order are that you can avoid additional ECN fees and you can make sure you get the right price.

Tax implications... I waded through post after post about this and could not get a clear and concise answer. If the price of the co-listed DLR stock changes before the journaling happens, what are the tax implications? I do not have a TFSA, because I was advised by a Canadian/US tax specialist that I should not have a TFSA (as a US citizen living and paying taxes in Quebec) because the US does not honor the tax deferral and I will get screwed. I don't mind paying my fair share of taxes, but if some kind of capital gain/loss happens because of the currency fluctuation, the tax implications might be too onerous to deal with (the amounts, but also figuring out the proper paperwork).

Has anyone done the USD->CAD Gambit with Questrade recently? I'd like to be a little more clear on these final details before I do something stupid and lose a bunch of money.

Thanks!

0. I tried to include the links here, but my post count is too low to include links, thanks a lot spammers!


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## mordko (Jan 23, 2016)

1. At Questrade use DLR.U/DLR.TO. There are no charges for buying ETFs, which gives this pair an advantage over alternatives.

2. Yes, you have to chat/email or call Questrade to journal. 

3. Yes, use Limit order

4. Yes, you have to pay tax if you make more than ~$50 on the exchange. Technically you are supposed to report any amount, but for very small $s nobody cares. It's not particularly difficult but you need to know how much you spend on buying and how much you received at the time of selling + the Bank of Canada exchange rate at noon.


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## tankers (Nov 1, 2016)

mordko said:


> 1. At Questrade use DLR.U/DLR.TO. There are no charges for buying ETFs, which gives this pair an advantage over alternatives.
> 
> I see some places saying to use DLR.U.TO to DLR.TO, instead of DLR.U to DLR.TO, in fact on questrade, I am only finding DLR.TO and DLR.U.TO


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## mordko (Jan 23, 2016)

Same thing. I omitted TO.


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## james4beach (Nov 15, 2012)

If you're a US citizen, then very important for taxes

1. Do NOT use a TFSA
2. Avoid all Canadian domiciled ETFs. That means DLR is a bad idea
3. RRSPs are OK, and are the only place to hold Canadian ETFs

US tax law makes it a very bad idea to hold any Canadian ETFs except inside your RRSP. Using DLR is a bad idea (unless in your RRSP), so you shouldn't do it. There is a ton of paperwork you will have to file, and stiff penalties for failing to file them with the USA. The terminology is PFIC.

You should really do the gambit with plain old inter-listed liquid stocks, such as: RY,TD,CNR/CNI

Individual Canadian stocks are perfectly safe when it comes to US-Canada tax law complications


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## Eclectic12 (Oct 20, 2010)

^^^^

Hmmm ... shouldn't this be "US citizen or classed as a US person"?

I don't fall into either but I seem to recall from some of the taxation threads that the two categories were what one needed to keep track of.


Cheers


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## james4beach (Nov 15, 2012)

Yes you are equally screwed if you're a US person.

I'm a Canadian citizen, and currently present in the USA above the threshold number of days (substantial presence test), which makes me a US person though I am not a US citizen. I am equally affected by all this insanity.

Many Canadian snowbirds and business people are also US Persons without realizing it. This is extremely dangerous and people must be very careful about this!


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## mordko (Jan 23, 2016)

Ouch. Why can't US persons own ETFs traded on TSX? How is it different from owning Canadian securities?


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## james4beach (Nov 15, 2012)

mordko, behind the scenes I think the US investment industry has lobbied to get these rules approved. It's a way to strong arm global investors into only using American mutual funds and ETFs. This aids with capital inflows to the USA.

The rules are stated as PFIC, "passive" investment corps. A mutual fund or ETF is considered this kind of passive entity, though certain stocks might be as well. Central Fund of Canada is classified as a PFIC as well, because well, it has passive static holdings. So I hold CEF.A in my RRSP, which is the only place a Canadian is immune from this regulation.

It's a crazy rule. My accountant told me that the IRS barely knows how to handle it, which is very dangerous: the advice I got was to avoid PFICs at all costs, because the amount of paperwork the IRS will create for me, plus the misunderstandings of their agents trying to apply a ridiculous set of rules, will make my life hell.


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## tankers (Nov 1, 2016)

james4beach said:


> If you're a US citizen, then very important for taxes
> 
> 1. Do NOT use a TFSA
> 2. Avoid all Canadian domiciled ETFs. That means DLR is a bad idea
> ...


Hum, much more complicated than I thought!

Ok, so I don't have a RRSP, so my options are to either get a RRSP and do the DLR in there (but then I can't withdraw the money from there), or do the inter-listed liquid stocks you mentioned. Any reason to pick one over the other?


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## james4beach (Nov 15, 2012)

You said you wanted to convert from USD to CAD (I do a lot of this by the way). And what do you want to do with the CAD? Is it general-use money, that you want to be able to put anywhere?

I think your only option is to use inter-listed stocks, but I don't know if those kinds of gambits are possible at Questrade. Hopefully someone else can add a thought. Are Questrade gambits possible if you are prohibited from using DLR?


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## tankers (Nov 1, 2016)

james4beach said:


> You said you wanted to convert from USD to CAD (I do a lot of this by the way). And what do you want to do with the CAD? Is it general-use money, that you want to be able to put anywhere?
> 
> I think your only option is to use inter-listed stocks, but I don't know if those kinds of gambits are possible at Questrade. Hopefully someone else can add a thought. Are Questrade gambits possible if you are prohibited from using DLR?


Yes, I want to use it as general-use money. I get paid in US$ (while I am living in Canada), and need to have the money available. Some of it I will re-invest into some sort of retirement fund, but I will need a chunk of it to pay everyday living expenses.


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## mordko (Jan 23, 2016)

Keep in mind that Norbert's gambit isn't particularly efficient for very small amounts of money... I use it for >$5k. Otherwise you may want to consider something like Knightsbridge http://www.knightsbridgefx.com/. That would also save you having to move money in and out of Questrade. 

I don't see why you wouldn't be able to journal interlisted shares such as RY at Questrade, but I haven't done it myself. Note that journalling typically takes a week. If you are transferring from USD to CAD, it means that the currency conversion risk is all yours, although you could win too (depending on the exchange rate does in that week).


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## humble_pie (Jun 7, 2009)

tankers said:


> I get paid in US$ (while I am living in Canada), and need to have the money available. Some of it I will re-invest into some sort of retirement fund, but I will need a chunk of it to pay everyday living expenses.



whenever i see a party with a regular USD paycheque or a USD business or any other need to frequently convert greenbacks to loonies, i usually suggest a BMO or a royal bank discount brokerage account.

these 2 are the only online brokers in canada whose web interfaces allow instant, cheap, seamless, online gambit trading. The gambit will work perfectly from USD to CAD or vice versa.

the gambit player will use a highly liquid interlisted stock that he does not already hold. RY or TD would be perfect - unless already present in an unregistered account.

if moving from USD to CAD, the gambit trader will buy the interlisted in US account, thus paying for the stock in US dollars. He will follow instantly with an order to sell the same shares in canadian account (notice the currency of the sell account.)

that's it. Two rapid trades, each at a low $9.95 online commission. No further complications. Performed so fast that there will be no taxes owing & most likely nothing to report.

the accounts themselves will look slightly odd for four or five days. The account will appear to be simultaneously long & short. But not to worry. A day or two after the official T + 3 settlement date, everything will clear up. The gambit trader will be left with zero shares plus all of that lovely cash in the desired currency, with never an FX fee.

there are drawbacks to gambit trading at questrade, in addition to the important issue james4 has raised upthread, which is Do Not Buy a PFIC such as DLR/DLR/U even if your Life Depends upon it.

keep in mind that gambit trading from USD to CAD is already risky at questrade, in that only DLR.U is pegged. Therefore the gambit trader moving from USD to CAD is exposed to currency risk for all the days it takes him to get the shares journalled into the opposite currency. 

a frequent gambit trader can avoid these complications via a BMO or a royal bank online account. It might sound like a pain to have to open another broker account, but the effort is probably worth the trouble. Double worth the trouble for a US person who should not be dabbling in canadian ETFs such as the DLRs to begin with.

best of luck. Might i congratulate you upon all the excellent research you displayed in post No. 1. You've dug up some great material.


.


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## tankers (Nov 1, 2016)

mordko said:


> Keep in mind that Norbert's gambit isn't particularly efficient for very small amounts of money... I use it for >$5k. Otherwise you may want to consider something like Knightsbridge . That would also save you having to move money in and out of Questrade.
> 
> I don't see why you wouldn't be able to journal interlisted shares such as RY at Questrade, but I haven't done it myself. Note that journalling typically takes a week. If you are transferring from USD to CAD, it means that the currency conversion risk is all yours, although you could win too (depending on the exchange rate does in that week).


Yeah, I'm only doing the gambit with amounts over 5k. The current amount I'm trying to do is 5.1k. 

How does Knightsbridgefx work? Are they just doing the gambit for you? Moving money in and out of Questrade isn't a problem, i've already gone through the process of getting all of that setup, so it is relatively painless.

You say journaling takes a week, everywhere else I've read its about 3 days, but maybe that is old information?


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## tankers (Nov 1, 2016)

humble_pie said:


> whenever i see a party with a regular USD paycheque or a USD business or any other need to frequently convert greenbacks to loonies, i usually suggest a BMO or a royal bank discount brokerage account.
> 
> these 2 are the only online brokers in canada whose web interfaces allow instant, cheap, seamless, online gambit trading. The gambit will work perfectly from USD to CAD or vice versa.


Arg, really? I initially setup an online brokerage account with VirtualBrokers, and got it so I could send my money there and then sat down and started to learn about the gambit, only to find out that I can't really do it with VirtualBrokers, and people seemed to think that Questrade was the place to do it, so I went and setup an account with Questtrade, went through all the forms and process and waited forever, and now you are telling me I should do it with BMO or royal bank? Forgive me for being frustrated, I should have come here to talk to you sooner.

So if I am going to jump ship again, which of BMO vs. royal bank should I pick? I don't want to pick one of them, only to have to change again in a few days to the other!



humble_pie said:


> the gambit player will use a highly liquid interlisted stock that he does not already hold. RY or TD would be perfect - unless already present in an unregistered account.
> 
> if moving from USD to CAD, the gambit trader will buy the interlisted in US account, thus paying for the stock in US dollars. He will follow instantly with an order to sell the same shares in canadian account (notice the currency of the sell account.)
> 
> that's it. Two rapid trades, each at a low $9.95 online commission. No further complications. Performed so fast that there will be no taxes owing & most likely nothing to report.


So essentially it would cost me $20 to do this gambit. I can save that $20 by doing it via Questrade, but I have to wait several days for the hand-journaling to complete. I see how spending that additional money can be worth it.



humble_pie said:


> best of luck. Might i congratulate you upon all the excellent research you displayed in post No. 1. You've dug up some great material.


Thanks for the tips, and the vote of confidence. I'm a bit of a noobie with all this stuff, and the complications with the US/CAD plust all the tax implications is quite a lot to sort out, but I'm getting a handle on it. Its just taking me a while, and I'm having to open all kinds of brokerage accounts in the process


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## mordko (Jan 23, 2016)

tankers said:


> Yeah, I'm only doing the gambit with amounts over 5k. The current amount I'm trying to do is 5.1k.
> 
> How does Knightsbridgefx work? Are they just doing the gambit for you? Moving money in and out of Questrade isn't a problem, i've already gone through the process of getting all of that setup, so it is relatively painless.
> 
> You say journaling takes a week, everywhere else I've read its about 3 days, but maybe that is old information?


Knightsbridgefx will simply change your currency. You just have to st up an account with them. They are far more cost efficient than the banks, for 5k they might be the cheapest option. I think there are one or two other businesses like that. 

Journaling from the US to the Canadian side took me exactly one week with Questrade, Monday to Monday. This was within the last 30 days. I actually made some money on this exchange. There is a currency risk in this delay, but on average you neither gain nor lose.


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## humble_pie (Jun 7, 2009)

tankers said:


> ... people seemed to think that Questrade was the place to do it [currency gambit trading]




with all due respect, where did anyone ever say that questrade is the go-to broker for currency gambit trading .each:

in reality, most reports would have it that questrade is one of the more difficult brokers to work with.





> it would cost me $20 to do this gambit [at BMO or royal bank.] I can save that $20 by doing it via Questrade, but I have to wait several days for the hand-journaling to complete.


i believe it would cost at least $5 in commission to sell the DLRs, although james4 has correctly warned you, as a US taxpayer, to stay away from canadian ETFs. Meanwhile it would cost $10-20 to accomplish a pair of stock gambit trades at questrade, using an interlisted canadian common stock as the carrier stock. Even then, you would *not* be able to accomplish the sell side instantly, as you could do chez BMO or chez royal bank.

speaking for myself, i would not leave a broker i had carefully chosen, a broker i had confidence in, a broker i liked, just so i could gambit easily at BMO or roybank. All i would do is open an additional online account at one of the two. It would serve as a backup & currency trading account (backup accounts are useful when the primary broker's website goes down) (also backups can offer different, possibly more valuable, research.)

you would want to check what the minimum account requirements are at bmo or roybank so you don't incur dormancy or small account fees. I can't speak for either, but generally speaking an investor needs to place one commissionable trade per quarter or have a minimum of $10k in the account or both. Some institutions have a $25k minimum.

the above are very reasonable low minimal activity requirements, so with a USD paycheque situation it should be possible to meet these minimums & avoid dormancy fees. If necessary you could always stash a quasi-permanent $10k holding in the account, somemthing like a core equity or short-term bond ETF.

best of luck. On the cheery side of things, once you've learned how to gambit, you will never again in your lifetime pay any FX fee to any bank or any broker. Now that is something worth struggling for!

.


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## tankers (Nov 1, 2016)

humble_pie said:


> you would want to check what the minimum account requirements are at bmo or roybank so you don't incur dormancy or small account fees. I can't speak for either, but generally speaking an investor needs to place one commissionable trade per quarter or have a minimum of $10k in the account or both. Some institutions have a $25k minimum.


It looks like BMO InvestorLine charges a quarterly fee of $25 for accounts with balances under $10,000 however this charge can be waived if 2 or more commission-generating trades are placed within a quarter or if a client also has a registered account. Note that registered accounts (except for RESPs) with balances under $25,000 (calculated on Dec. 31st) are charged $100 annually. For RESPs, the annual administration charge is $50 for balances under $25,000.

Tried to start the process, but:
"We are currently experiencing technical difficulties and cannot process your Application. You may access your saved Application later using the Application Number and the Password you selected earlier. We apologize for the inconvenience."

I've heard some reports that in the last year, BMO is not keeping up with the demand,and if you try to login to your account around 9:30am or 4pm, it can take 2-3 failed attempts (with very “informative” errors like “The proxy server did not receive a timely response from the upstream server. Reference #1.ec2bf648.1422285118.ef29fd99″ or “We’re sorry. The page you are looking for is currently unavailable. Please try again.”). This morning I couldn’t login to my account for 25 minutes. Even when you are successful with login it takes up to 3 minutes delay until you get to your portfolio page. Often, you get disconnected for no reason just because their servers cannot handle that many simultaneous connections.

They also get a below average "Client Service" review by Dalbar Canada Review for 2015


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