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Low Cost Currency Conversion with DLR/DLR.U ETF

A pet peeve of mine is the fee that discount brokers charge for currency conversion, some as high as 2.5% each direction.  This fee creates an additional drag on investment returns, especially on larger trades.

For example, say I wanted to purchase $10,000 worth of Walmart stock with Canadian dollars.  If I did a straight purchase with Canadian dollars with my Questrade account, the fee (on top of the spot rate and commission) would be 1.99% or $199.  The shares would need to increase by almost 2% just to break even on the trade. To look at it another way, the $199 is almost enough to purchase three additional shares.  There has got to be a better way right?  Keep reading!

The Strategy

I stumbled across a thread on Canadian Money Forum (and Canadian Capitalist) that discussed a relatively easy and low risk method of saving money on currency conversions.  Curious?  It’s through using Horizons DLR and DLR.U ETFs.

At a high level, you would buy DLR through your Canadian account then sell DLR.U on the US side.  DLR will track the CAD/USD exchange, so once you purchase the ETF, you have locked in your exchange rate.

The Step by Step Procedure

I used this strategy with my Questrade account, which was pretty straight forward with the added benefit of not having to pay the buy commission because DLR is an ETF.

  1. Buy DLR. Purchase DLR using a limit order with your Canadian trading account.  As of May 24, 2013, DLR costs $10.31.  So if you want to exchange $10,000 CAD, purchase approximately 970 shares (total $10,000.70)
  2. Journal the Shares. Contact Questrade support (via phone or online chat) and request to journal the shares to your US account as DLR.U.  There should be no fees to journal the shares over.
  3. Sell DLR.U. Once the shares are in your US account, sell DLR.U using a limit order. As of May 24, 2013, DLR.U costs $9.97 and selling 970 shares will net you $9,670.90.  With xe.com (spot rate) quoting  0.96941, this strategy gives you 0.96702.  You have now exchanged your Canadian dollars into US dollars at a relatively low cost.

The Savings

So now that you have some CAD exchanged to USD, how much did you save?  Using this strategy results in paying a fee of approximately 0.20% – 0.25% (plus spot rate and commissions) compared to 1.99%.  On $10,000 CAD, that’s a savings in the tune of $180.  Do this a few times throughout the year, and the savings become significant.

Final Thoughts

Using DLR/DLR.U ETF combination for foreign currency exchange (CAD/USD) is a low cost and low risk strategy that I’ll likely being using a lot over the years.  My instructions above are for Questrade, but have any of you used this strategy with other Canadian discount brokers?

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 54 comments… add one }
  • Free Money Minute May 27, 2013, 9:58 am

    Why not just use an index fund with low fees?

  • Manish May 27, 2013, 11:59 am

    This strategy works even better with RBC Direct Investing as there is no need to call support to journal the shares over to US side. You simply buy it in the Canadian Dollar Account and sell equal no. of shares in the US Dollar account. And the strategy is applicable to any shares that are dual listed (Royal Bank, Potash, Blackberry etc) not just DLR and DLR.U. I recently used it to convert $30000 from CAD to USD. Used Royal bank and it worked like a charm.

  • igra May 27, 2013, 1:41 pm

    I’ve done such convertion in my RRSP at TDW not so long ago. It works. Had to call to sell DLR.U after buying DLR on-line.

  • Steve May 27, 2013, 3:09 pm

    What’s the risk in moving larger sums where there isn’t enough market volume and the ETF tracking error goes up? Avg volume is 20K, approx $200,000. What about when I want to launder my drug money? jk.

    • Gary December 30, 2015, 5:58 pm

      That’s exactly what my concern is as well, I’m looking at moving big sums of money from USD to CAD & I’ve been reading about this method, I’d love to give it a go, but the volume is so low, I’m quite concerned about doing this… today there were only about 30K traded for DLR-U.TO & 125K on DLR.TO, I can’t figure out how this can be safely done, nor figure out if the spread between the 2 are even close to accurate between the 2…

      The close was good (DLR 13.83 vs DLR-U 9.97) which was almost exactly what I got with a currency converter 9.97USD = 13.85USD, but the charts don’t match & the VOLUME is a HUGE concern to me. Am I missing something here?

  • Michael James May 27, 2013, 4:25 pm

    I did this at Investorline a year ago. I wrote up an account of how it worked for me here:

    http://www.michaeljamesonmoney.com/2012/03/trying-norbert-gambit-at-bmo.html

  • Andrew F May 27, 2013, 5:49 pm

    FT, I was told by Questrade that you could not sell DLR.U through their web platform. Something about their system not recognizing the difference between DLR and DLR.u. So you instead buy DLR through the online platform, they call their trade desk to sell DLR.u. Because this transaction is not possible their their web platform they waived the phone commission, which was something like $50.

  • A.M May 28, 2013, 10:50 am

    I regularly do it with my Qtrade account. Can be done completely online, no need to call customer service.

  • FT FrugalTrader May 29, 2013, 10:08 am

    @Andrew, was this a recent issue that you had?

  • Andrew F May 29, 2013, 11:01 am

    FT, I did this three months ago.

  • Be'en May 29, 2013, 10:22 pm

    Do you have to wait until the buy transaction is settled before selling, or you can do all the 3 steps (buy, journal/transfer and sell) on the same day within minutes? I am with TD Waterhouse.

  • igra May 30, 2013, 1:41 am

    @Be’en, I’ve completed this at TD Waterhouse in 15 or so minutes. I called them and waited to get through to the licensed representative. Once connected, I placed the buy order for DLR on-line which got filled promptly. I then asked the representative to sell DLR.U for me which they did without charging me commission because it’s not doable on-line. No need to wait for the buy transaction to settle.

  • Stuart M May 30, 2013, 6:40 pm

    I use MoneyWay to exchange my CAD to USD (0.5% spread). I then deposit this USD in my USD account and pre-authorised deposit the USD funds into my Questrade account.

    No fees at all, just the spread which is the lowest I have found so far.

  • Be'en May 30, 2013, 9:09 pm

    @igra

    Thanks.. Did you complete all the 3 steps over the phone, or did you first buy DLR online and then called to journal over and sell? No commission for either buying or selling?

    @Stuart M, I am in Toronto. How would one purchase USD? Open a CDN account with MoneyWay first?

  • igra May 31, 2013, 1:18 am

    @Be’en
    I first bought DLR online then called to sell. There was a commission of $9.99 for each transaction (buy and sell) because I have over 50K in total assets with TDW. What I wanted to say above was that they didn’t charge me the “phone commission” ($29) for selling DLR.U – only the $9.99 as if I was doing it myself online.

  • Be'en May 31, 2013, 1:40 am

    @igra

    Thanks for the clarification. I will give this a shot soon.

  • e June 7, 2013, 2:11 am

    Is there any chance that income tax will need to be paid on this set of transactions (ie are we making a “profit” buying and selling these shares?)?

  • WickB June 8, 2013, 11:39 pm

    Can anyone (especially Manish if you’re still listening as I’d do it through RBC) tell me the turnaround time on the transactions? I exchange about $20K weekly from RBC C$ to RBC US$ via a currency exchange company that comes pretty close to this spread. Funds go out at noon and are in the US$ account by 4pm or sooner. These are business transactions so important to do quickly but shaving even a part point off would add up over time.

  • Guyman June 17, 2013, 4:09 pm

    I just bough DLR.TO with Questrade and used the live online support to have it journaled to DLR.U.TO. The rep told me that they would journal the shares as a courtesy, but in the future I will have to buy the ETF in the correct currency. Perhaps they are seeing too many people taking advantage of this method?

  • FT FrugalTrader June 18, 2013, 10:42 pm

    @Guyman, it could be increased MDJ readers using this strategy (a lot of readers here use Questrade). I would say that it should die down a bit in the coming months. Hopefully, Questrade figures out a way to automate this process like other brokers do (ie. RBC).

  • BC June 25, 2013, 12:36 pm

    I purchased DLR in my *RESP* on Thursday last week. I called Questrade later that same day and asked for the units of DLR to be journaled to the USD side of my *RESP*. CSR advised me the request has been made and it will happen when the trade settled. I confirmed that the settlement will be today (Tuesday, Trade day + 3days ). He confirmed the settlement date.

    I asked how would I know it has been carried out. He told me the value of the security would show up on the USD balances of my account.

    When I logged in today to see if the journaling had happened, nothing new was on the USD side. I called in to get some info.

    Same CSR answered the call. He checked with his back office, and said they rejected the journaling as it is not possible for an RESP. When pressed for terms and conditions on this, he said it was a CRA rule. He said you could do it for other accounts, but just not RESPs.

    He also said, while I can have USD in my RESP, the system shows it as some proxy-security representing USD, but on the Canadian side of my account (just equivalent to spot FX rate). He said it is tracked like cash, but really isn’t cash the way they have it in the system.

    Why RESPs are treated differently makes no sense to me. Does anyone have similar experiences they could share to confirm if RESPs are different and how US securities are treated in a Questrade RESP?

    BC

  • The Passive Income Earner August 25, 2013, 2:56 am

    VBCE (Vancouver Bullion & Currency Exchange) which I use to exchange my USD to CDN just started offering online exchange. It’s setup for Canadian banks too. They have always beaten the prices from the banks and discount brokers and has been convenient for me.

    I personally tried the Norbert Gambit but found it takes quite a bit of time for the trades to settle …

    Just thought I would share …

  • Manish October 11, 2013, 3:46 pm

    @WickB
    It normally takes 3 days for the account to settle. The balance during that time shows up as weird negative amounts. But after settlement its all sorted out

  • Mike December 5, 2013, 11:52 pm

    Will this work in the other direction as well? (USD to CAD)

    Buy DLR.U, journal, sell DLR?

  • The Passive Income Earner December 6, 2013, 11:54 am

    @Mike

    Yes it does. I mostly do it that way.

  • brock prop January 6, 2014, 3:39 pm

    has this changed since the consolodation they did in late december?

  • sensei January 7, 2014, 4:40 am

    Thanks for the great article.
    I have another question, would the method you just described also apply to exchanging other currencies on questrade? I want to buy some stock in australian dollars and the guys at questrade said the fees would be $199 min. per transaction plus applicable exchange fees…

    any idea?

  • D-Dawg January 27, 2014, 5:51 pm

    An update for the people who use Questrade. I just completed a NG transaction (January, 2014)

    The total fees for the conversion were 0.245% (to convert approximately 7990CAD to USD).

    I was charged 0.01US$ per share (7.29US$ in total) for journaling DLR.TO to DLR.U.TO and 9.85US$ to sell the shares.

    I did not have to call the trading desk to sell the DLR.U.TO. I was able to do this from my brokerage account. Others have reported that selling DLR.U.TO was not possible without calling the trade desk, however, I my case I did not have to do this.

  • FT FrugalTrader April 18, 2014, 11:06 pm

    I have done this gambit a number of times with my Questrade account! Works like a charm! I typically use the online chat function so no need to wait for a trader on the phone.

  • Scooter April 30, 2014, 11:29 am

    Is there anything to keep in mind when it comes to income tax if performing the Norbert’s Gambit with Questrade 3-5 times per year?

  • JackDenia1 May 9, 2014, 12:42 am

    Warning: The DLR trick is risky, I bought 915 shares at 10.97 and by the next day it went down to 10.91 and hasn’t recovered.

    I’ve now lost more money then it would have cost me to transact currency exchange at questrade 1.99%.

    • FT FrugalTrader May 9, 2014, 8:32 am

      @Jack, not that when you buy DLR, you are effectively locking in your FX rate because DLR.U is relatively fixed. DLR will float with the fx rate.

  • The Passive Income Earner May 11, 2014, 3:43 pm

    @Jack

    You want to sell right after your purchase is confirmed. When I do it, I purchase it and as soon as it’s done, I sell it. I don’t try to get a better price or anything like that. I put a limit on the ask price. If you wait, then you will fluctuate with currency.

  • Andrew June 9, 2014, 4:15 pm

    Well I tried this today with TD Waterhouse and they were able to do the trade for 9.99 but told me in the future their policy is to charge $39 + $$/share when you want to journal the shares over and sell them. I tried to explain to them that other brokerages you can do this completely online without telephone support, and they don’t charge you. but the representative said this is their policy and in the future they won’t honour the 9.99 commission price for this type of trade.

  • David July 25, 2014, 2:13 pm

    You say to use a limit order on each side of the trade. How do you decide what price to make your limit?

    • FT FrugalTrader July 25, 2014, 2:25 pm

      @David, if buying DLR, I put a limit buy order on the “ask” price. When selling DLR.U on the US side, I put a limit sell order on the “bid”.

  • The Passive Income Earner July 26, 2014, 3:22 pm

    @David

    I do the same as Frugal Trader. I always buy or sell with limits. Often time, it’s the market order.

    Once, I put a market sell limit for DLR and after a week I had to increase it because the exchange rate was going in the other direction.

    Limit orders protects you against the computer glitches …

  • David July 31, 2014, 5:08 pm

    I was just checking with Questrade, and they told me it can take 3 business days to journal the shares over, so it seems the biggest risk is a currency fluctuation while you are waiting. I called Vancouver Bullion and Currency Exchange, and the quoted me 30 basis points to exchange, but that was involving amounts in the 10-20K range, but it seems that if the rate is 30 basis points it is competitive enough to be a better option since it avoids this risk from the delay to journal. Is it everyone else’s experience that journaling takes several days?

    • FT FrugalTrader August 1, 2014, 1:39 pm

      @David, when you buy DLR, you lock in your FX rate. DLR fluctuates, DLR.U should be relatively stable.

  • The Passive Income Earner August 1, 2014, 1:44 am

    @David

    DLR and DLR.U does not change exchange. They both trade on the TSX. With RBC Direct Investing, I can buy one and sell the other right away. The purchase takes a few days to settle and so does the sell. From a value perspective, buying/selling isn’t a problem for the exchange but you still have to wait to withdraw your money for the transactions to settle.

    I also use VBCE online (in person in the past) but only for small amounts.

    I think you need to ask Questrade if you can buy and sell DLR between DLR and DLR.U (since they are the same company on the same exchange) as opposed to ask about journalling. In my case, journalling shares between TSX and NYSE for ENB for example takes time.

  • David August 2, 2014, 1:28 pm

    Dear Passive Income Earner,

    Can you tell me the exact steps that I would have to take to exchange $Ca to $US without having to journal the shares? Let’s say I buy $500 canadian worth of DLR.TO, now I have 46 shares of that, what do I do next? I’m confused on how exactly your method is done and how it works. Thank for your assistance on this btw.

  • The Passive Income Earner August 2, 2014, 4:06 pm

    With RBC Direct Investing,

    I make a purchase of DLR of 46 shares and then I sell it once I have confirmation of purchase as DLR.U. I am able to specify DLR.U as a sell event though what I hold is DLR.

    On the web site, it gives a warning but you just have to ignore it. I talked to someone and they have confirmed DLR and DLR.U are the same company and will do the transaction.

    You REALLY need to talk to your discount broker and keep on persisting with them just to make sure they can support it.

  • David August 4, 2014, 2:42 pm

    So, the other thing I don’t understand is how your exchange rate would be “locked in” once you make the initial purchase of DLR.TO. Once you journal the shares over and it is DLR.U.TO, I would still have to sell it to another investor on the stock exchange, so it seems to me the selling price has not been negotiated yet with the buyer and the price of the ETF is still floating until I make my sale, and in that way the exchange rate cannot be “locked in”. Where is my thinking wrong?

  • Brian August 27, 2014, 4:59 pm

    Not sure if you’ve updated this on any newer pages; however, clients can email Questrade (support@questrade.com) to have DLR journalled to DLR.U. I’ve done this several times recently and it’s never failed on me.

    Clients must email on the business day *after* the DLR units are bought (t+1). In my experience, the journalling happens the business day after that (t+2), or occasionally the next day (t+3). The email must contain a specific instruction, and specify the account number.

    This has always worked for me.

  • sclim November 14, 2014, 6:35 pm

    @The Passive Income Earner: It wasn’t clear to me whether the process of “journalling” was to apply the transfer of the bookkeeping entry of the share from one stock exchange to the other, or to specify the bookkeeping be conducted in the account applying to the other currency. I suspect, because it is required by some platforms (Questrade) for DLR/ DLR.U which only trades on the TSE, not anywhere else, that it is the latter situation.

    I would like to be clear, too, that in your experience with RBC DI that you can purchase units of DLR.TO and then immediately sell them as as DLR.U.TO and then immediately use the proceeds in US Dollars to buy shares on, say the NASDEQ, priced in US dollars, such as VXUS. Is this the case? It’s just when you want to withdraw US Dollars as cash that you have to wait 3 days for the last trade to settle, is that correct?

  • The Passive Income Earner November 15, 2014, 5:00 pm

    @sclim

    That’s correct. Withdrawing the cash is not immediately available but proceeds from a sell towards purchases is available based on my experience. They allow your account to be negative through settlements I have found too due to the delay of transactions and transfers.

  • sclim November 15, 2014, 6:24 pm

    @The Passive Income Earner: Must have been a bit nerve wracking the first time around, eh lol?

  • Woody January 30, 2015, 5:25 pm

    I don’t understand why people worry about currency fluctuations using Norbert. You are converting CAD to USD. After you do that, you are affected by future currency fluctuations whether you are holding hard USD, DLR, DLR.U, or shares of something on the NYSE. Closing out your DLR.U position into USD or a USD equity does not protect you in any from from currency fluctuations. The only practical effect of a 3-day wait on a NG is it just takes a bit longer to enter your new position. So you might miss out on a move there.

    But if you’re converting CAD to USD, you can’t avoid the risk just by closing it faster.

  • Jeff January 29, 2016, 11:37 am

    Hi all,
    I’ve read all the above comments and the consensus is that if exchanging from CAD -> $USD, the currency exchange rate is locked in when buying the DLR:TO, so no need to worry about the 3-day journaling (if such wait is req’d at brokerage).

    Now, I read that the reverse is not true. Since my interest is exchanging USD -> $CDN, I live in USA and Fidelity USA is telling me there’s definitely a 3-day journaling wait time. If I buy DLR.U:TO and have to wait 3 days to exchange into DLR:TO, and DLR:TO is the one that’s actually fluctuating, then this would mean that there’s a lot of risk in this trade, is that correct?

    If not using DLR, do you suggest using any other symbol to perform Norbert’s Gamibt for USD -> $CDN conversion?

    • FT FrugalTrader January 29, 2016, 12:00 pm

      Jeff, which brokerage are you with? If you are with BMO or RY, your account with “auto journal” your interlisted stocks. Check out this article:

      http://www.milliondollarjourney.com/save-money-with-usd-to-cad-foreign-exchange-using-norberts-gambit.htm

      • Jeff January 29, 2016, 12:30 pm

        Hi FrugalTrader,
        Tks for the quick responding.
        I am a canadian living in USA and don’t have a CDN brokerage account. I looked into Questrade and others and it seems they won’t open accounts for US residents , so that’s not an option. That’s why I am limited to US options and Fidelity USA is one of the better choices out there, cheaper fees, more CDN stocks accessible…etc..
        For whatever reason, Norberts Gambit isn’t big down here as I haven’t found much in my research; I found lots of info here at milliondollarjourney, but mostly canadian-centric. I still need some advice as to buying DLR and DLR:U and how to minimize the risk of currency exchange movement from the perspective of exchanging USD -> $CDN.
        Thanks !

    • Jeff January 29, 2016, 1:18 pm

      A quick update to my orig. question:
      So I called Fidelity USA again to clarify about the “3-day settlement.” It turns out my understanding of the meaning of “settlement” was wrong – all it is, is just a back office, administrative, account recording procedure that the broker needs to perform to recognize that a inter-listed stock has been purchased, maybe on the NYSE exchange, and then sold on the TSX exchange. During the settlement time (3 days or whatever), you don’t have access to the sold proceeds (unsettled funds), but the price at which you bought and sold the security is already determined at the time when you bought and sold; hence when you sell, you already know how much proceeds you’ll gain (hence the currency exchange rate), it’s just not immediately accessible until 3 days later.

      Since BMO/BMO:TSX and RY/RY:TSX have much higher liquidity compared to DLR, I specifically asked Fidelity if I can buy these and immediately sell them, I was told a “YES,” and this is what I intend to use to implement NG.

  • FT FrugalTrader January 29, 2016, 1:48 pm

    @Jeff, I was going to suggest to give your brokerage a call to see their process on journalling shares. It looks like they auto journal as well, which is great for you.

    Good luck!

  • Oldie January 29, 2016, 3:36 pm

    If you’re going to use inter-listed stock, in my experience TD bank stock has even greater liquidity, taking into account volume on both sides of the border, if you want to be as careful as you can be (the hold up is likely to be on the side with the lowest volume, right?) However, it probably won’t make any difference as the volume of the other bank stocks you mention is still pretty high.

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