Norbert’s Gambit and Scotia iTrade

In the realm of international investing, savvy investors seek strategies that allow them to optimize their returns while minimizing unnecessary costs. Enter Norbert’s Gambit, a technique used by many as a cost-effective solution for converting funds from one currency to another, in this example from USD to CAD. By sidestepping hefty fees and unfavorable exchange rates associated with traditional methods, Norbert’s Gambit empowers investors to achieve greater cost efficiency, and reduce currency risk. In this blog entry, I will demystify Norbert’s Gambit, providing a comprehensive guide to help you understand and utilize this technique to your advantage on the Scotia iTrade platform. Whether you’re an experienced investor or new to the world of currency conversion, this article will equip you with the knowledge needed to unlock the potential of Norbert’s Gambit and optimize your international investment strategies.

iTrade Accounts split US/CDN dollars

1. Buy DLR.U in US Dollars – I bought 700 shares at a price of $10.050, with a $9.99 commission the settlement amount was $7044.99.
2. You cannot journal the shares on the same day you buy them, they won’t be available for journaling until the next trading day.
3. Next day – Call the Scotia iTrade number – 1-888-872-3388 and use the prompts to get to an agent for an equity trade.
4. I asked the agent to “Journal my 700 shares of DLR.U to the Canadian side” – if you have multiple accounts they will need the account number.  
5. They will ask when you are selling – Make sure you tell them you are selling the shares the same day – there is a separate process on their side to make the shares available for sale the same day.  You don’t have to sell the same day but selling as soon as possible will reduce slippage.
6. Sell the DLR shares in Canadian dollars – your Buying Power will increase but the cash will not be available until the trade settles (2 days).  I sold 700 shares at $12.83 for $8981 (less the $9.99 trade commission)

Scotia Exchange – 1.241800 ($8736.06)

USD Exchange – 1.283830 ($9031.74)

Summary – a “clean” exchange, i.e. no fees would have net $9031.74 – this is theoretical as there is no way to exchange USD to CAD without fees – the goal of Norbert’s Gambit is to reduce fees.

A straight transfer from USD to CAD in iTrade would have given me $8736.06, i.e. a difference of $295.68.  On Scotia there is no “fee” per se – Scotia takes their fee in the difference between the actual exchange rate and their exchange rate which can fluctuate between 2.5% to 3.5% difference.

Norbert’s Gambit had the following costs:

Fees – $9.99 to buy the DLR.U shares and $9.99 to sell the DLR shares – Journaling (other than your time) is free.

Slippage – $40.75 – this is the difference between the exchange when I bought the shares and when I sold them – with fees and slippage the total cost was $60.73.  Slippage could also work the other way, i.e. I could have made $40 on the trade if the dollar had moved in the other direction overnight.

You can see from the information above that if you have the time – it is worthwhile to use Norbert’s Gambit for any USD:CAD currency exchange over ~$800.

In the realm of international investing, savvy investors seek strategies that allow them to optimize their returns while minimizing unnecessary costs. Enter Norbert’s Gambit, a technique used by many as a cost-effective solution for converting funds from one currency to another, in this example from USD to CAD. By sidestepping hefty fees and unfavorable exchange…