Norbert’s Gambit – Cut Your Brokerage Forex Fees

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KEY POINTS

• Eliminate Excessive Forex Trading Costs

  Norbert's Gambit is a rare opportunity for retail investors to attain institutional pricing and substantially reduce forex conversion costs.

• Efficient Forex Strategies

  Uncover step-by-step procedures to efficiently convert CAD/USD transactions while gaining insight into potential currency risks and essential considerations for successful implementation.

• Wise: A Smart Alternative

  For a seamless, non-brokerage option, Wise emerges as a compelling solution, offering a user-friendly platform with a multi-currency debit card. Enjoy institutional pricing and competitive advantages, eliminating the need for traditional banks with exorbitant fees.

Are you tired of paying excessive forex fees?

Do you convert CAD/USD for personal or business purposes?

Norbert’s Gambit is a rare opportunity for retail investors to receive institutional equivalent pricing.

Discover how to eliminate your financial institution’s spread and significantly reduce your forex conversion costs.

My introduction to Norbert's Gambit came during a call to my brokerage firm, seeking options to trim my forex costs. To my surprise, my broker recommended researching Norbert's Gambit. After conducting thorough research, I promptly implemented the strategy and have successfully utilized it multiple times since.

The model below illustrates the potential savings at your fingertips based on converting CAD 10,000 to USD.

Source	Forex Rate	Rec’d USD	Cost USD	Cost %
Thomson Reuters	0.7325	7,325	-	-
Norbert’s Gambit	0.7325	7,325	-	-
Brokerage firm	0.7218	7,218	107	1.46
Bank	0.7160	7,160	165	2.25

Norbert’s Gambit generated a savings of 2.25% and $165 on conversion. This is approximately 8-15 times cheaper than the bank after factoring in estimated trading costs of $10-$20 depending on the rates charged by your brokerage firm.

The potential savings are substantial and can be exponential if reinvested. A $100,000 conversion would have generated $1,635 of savings which could grow to $17,880 over 30 years at an 8% monthly compounded rate of return.

The bank and brokerage firm charged forex related fees of 2.25% and 1.46%, respectively, in contrast to the market rate provided by Thomson Reuters. These excessive forex fees are potentially understated when compared to the 3-4% rates observed at other financial institutions.

How does Norbert’s Gambit save forex fees?

Norbert's Gambit is a currency conversion strategy designed to eliminate the spread imposed by your financial institution. This method involves trading a dual-currency exchange-traded fund ("ETF") or interlisted stocks.

You can use it in your registered or non-registered brokerage account, this technique requires sub-accounts to accommodate CAD and USD securities. As illustrated above, transaction economics makes sense for conversions above $10,000. For smaller amounts, opting for your local bank may be more financially and administratively practical.

Let’s look at how to execute the strategy utilizing an ETF.

Forex fee reduction - ETFs

The Horizons U.S. Currency Fund ETF trades on the Toronto Stock Exchange under both DLR and DLR.U.

DLR is priced in CAD.

DLR.U is priced in USD.

Both share the same CUSIP; therefore, they are not distinct securities.

The following steps will convert your CAD to USD.

• Target

  Decide the amount of CAD you would like to convert to USD.

• Purchase

  Utilize CAD to purchase units of DLR in your CAD brokerage account

• Settlement

  The trade will settle in two days (one day settlement effective May 2024). You are not exposed to currency risk during the two day period as your DLR units are invested in USD denominated cash and cash equivalents.

• Journal

  Upon settlement, journal the entire DLR position from your CAD account to your USD account. Such transfer should be immediate; however, brokerage experiences vary.

  You may need to contact your broker to carry out the transfer. Your broker may charge a fee for such a service.

  The security will now be reflected in your USD account as DLR.U.

• Sell

  Sell the DLR.U position. Such is subject to the same settlement period noted in step three at which time the USD proceeds will be available in your USD account.

To convert USD to CAD, perform the same process by starting with the purchase of DLR.U in your USD account. One key difference is that you will continue to have USD currency risk until you journal the DLR.U units to your CAD account and sell such units. This period may extend beyond the two-day settlement period due to weekends, statutory holidays, or your brokerage’s time taken to journal the shares to your CAD account.

Forex Fee Reduction - Stocks

Norbert’s Gambit can also be executed while utilizing interlisted stocks (the security trades on both the Canadian and U.S. exchanges). Such models often involve large Canadian banks or natural resources companies due to their highly liquid nature and potential to keep the exchange rate close to the spot rate.

We haven't modeled this process because of its increased complexity and risk. The risk profile of a currency-based ETF differs significantly from that of a stock.

Potential tax consequences may arise if the stock declares a dividend during the process, or you could trigger superficial loss rules when using an existing stock purchased in the last 30 days. Additional expertise is necessary if the trade involves a short position in a margin account.

When to Utilize Norbert’s Gambit

The strategy is well suited for transactions > $10,000 that do not require immediate settlement.

FOREX STRATEGY
PROS	CONS
Institutional pricing	Multi-day process
Increased savings	Brokerage account required
Compound growth on savings	Equity approach may require professional guidance
Execute in registered and non-registered accounts

Non-Brokerage Forex Option

Exploring currency conversion outside your brokerage account is an option to consider. However, it demands careful planning, particularly concerning the nature of your brokerage account.

A withdrawal from your brokerage account could potentially trigger tax consequences (e.g., withdrawal from a tax-deferred account) and impact contribution limits, adding an extra layer of complexity and risk to be mindful of.

Wise is one of many competitors that can reduce the forex fees you pay to your brokerage or bank.

Wise’s Forex Offering

Wise offers a compelling solution to the challenges of forex transactions, promising an end to exorbitant fees typically charged by traditional banks. The platform provides efficient, rapid, and secure management of personal and corporate foreign currency needs.

With the convenience of a multi-currency debit card, users can effortlessly hold, send, and receive various currencies. The Wise card, embodying pillars of convenience, global accessibility, competitive pricing, swift transactions, and transparency, emerges as a cost-effective solution for those seeking efficient global financial management.

The platform's personal and business accounts, featuring diverse benefits and a user-friendly interface, cater to the needs of a broad audience. Additionally, the Wise debit card, issued through Visa and Mastercard networks, provides flexibility and accessibility in over 175 countries.

Unlocking Savings: The Wise Approach to Foreign Exchange Fees provides an in-depth review of Wise’s service offering. Clicking the buttons below will directly navigate you to Wise's offerings.

FINAL THOUGHTS

The strategies discussed have the potential to provide you with institutional pricing normally reserved for the world’s wealthiest families.

Norbert's Gambit can be a cost-effective strategy for slashing forex fees, ideal for transactions over $10,000. The potential savings, coupled with compound growth, make it an attractive option for both personal and corporate use.

For a practical, non-brokerage alternative, Wise offers a user-friendly platform with a multi-currency debit card, providing efficient and transparent services.