Norbert's Gambit: How to Convert CAD to USD Cheaply in a Brokerage Account

Norbert’s Gambit is a way to convert Canadian dollars to US dollars inside your brokerage account at close to the market exchange rate, instead of paying the broker’s conversion charge. It takes a few days and a few extra steps, so it pays off mostly on larger amounts. This page explains how it works, what it costs, and when it is worth doing. For the other ways to invest in the US, including Canadian-listed ETFs that avoid conversion altogether, see how to buy US stocks from Canada; to compare brokers, see the online broker comparison.

Why it exists

A broker converting currency for you charges a spread or fee on the amount: Questrade’s standard rate is 1.5%, and Wealthsimple charges 1.5% on US trades placed from a CAD account. On $50,000, 1.5% is $750. Norbert’s Gambit uses a security that trades in both currencies to do the conversion through the stock market instead.

How it works

Using DLR and DLR.U

DLR is an ETF that holds US-dollar cash and cash equivalents. It trades on the Toronto Stock Exchange in Canadian dollars as DLR and in US dollars as DLR.U.

1. Buy DLR with Canadian dollars.
2. Wait for the trade to settle (1 business day).
3. Ask the broker to journal the DLR units to DLR.U in the US-dollar side of the same account. Some brokers take the request online; others need a call or chat.
4. Sell DLR.U once it appears. The proceeds are in US dollars.
5. Buy your US investment with those US dollars.

To go the other way (US to Canadian dollars), buy DLR.U with US dollars, journal to DLR and sell.

Using an interlisted stock

A stock listed on both the TSX and a US exchange works the same way: buy it in Canada, journal it to the US listing, sell it in US dollars. The difference is price risk: the stock can move while the journal is processed, whereas DLR tracks the exchange rate.

What it costs

Converting $50,000:

The bid-ask spread on DLR is usually small, but check it before trading, and use limit orders on both trades.

At Questrade

Questrade accounts, including TFSAs and RRSPs, hold both Canadian and US dollars, and journaling can be requested online for $9.95 (unlimited and free with the $19.99-a-month Questrade Plus plan). Stock and ETF trades are $0, so the journaling fee and the spread are the whole cost.

At other brokers

• Interactive Brokers converts at 0.20 basis points directly, so the gambit adds little there.
• Wealthsimple prices conversions into its USD account by size, from 1.5% under $10,000 down to 0% from $100,000. Confirm with Wealthsimple whether it will journal between DLR and DLR.U.
• Bank-owned brokers generally allow journaling on request; check the fee, whether the account can hold US dollars, and any trade commissions before starting.

Tips

• Do not sell and rebuy. Selling DLR for Canadian dollars and then buying DLR.U with US dollars triggers the broker’s normal conversion. The units must be journalled.
• Let the purchase settle first. Request the journal only after the DLR purchase has settled.
• Use limit orders on the buy and the sell to control the spread.
• Size matters. On small amounts, a journaling fee and the extra steps can outweigh the saving; at 1.5%, a $2,000 conversion costs $30 the standard way.

When it is worth it, and when to skip it

It tends to be worth it for one-off conversions of several thousand dollars or more, and for moving US dollars into an RRSP to hold US-listed investments, where US dividends are generally exempt from withholding tax (see asset location).

It is usually not worth it for small, regular purchases, or when a Canadian-listed ETF that holds US stocks does the job without any conversion. For conversions outside investing, such as travel money, see where to exchange currency in Canada.