I need US dollars for an investment in a USD-denominated stock, but I am unwilling to pay what I perceive to be the extravagant commissions banks are charging. The Canadian dollar is currently trading at about 0.72 in US dollar terms. I plan to use what has been referred to as “Norbert’s Gambit” to reduce my foreign exchange purchasing costs. The gambit has been explored on various sites, but I plan to implement the version described by PWL Capital Ltd, as I am a customer of RBC Direct Investing, and that version sets out almost exactly what I propose to do.
Here are my steps, assuming I need about USD 10,000 to make my investment, costing me about CAD 13, 800 at current exchange rates:
- Transfer CAD 13,800 from my RBC CAD chequing account to my Direct Investing Account.
- Buy 100 DLR ETF units at the ask price of CAD 13.79 each and pay commission of CAD 9.95.
- Sell 100 DLR.U ETF units at the bid price of USD 9.96 each and pay commission of USD 9.95. (DLR and DLR.U are equivalent units, except the former is priced in CAD, while the latter is priced in USD).
- Purchase the stock denominated in USD with the USD 9,967 now in my Direct Investing Account.
I calculate that my effective cost will be CAD 1.3845 per USD. This compares with the CAD 1.4201 per USD the bank would charge me at one one its branches. At the bank’s exchange rate, I would only be able to obtain USD 9,718. Using the gambit I will be able to obtain USD 9,967 – a savings of about USD 250.
I’ll update this post with the results as soon as I have them.