Norbert's Gambit

https://www.youtube.com/watch?v=LOwkArk1IuM

Norbert's Gambit is a cost-effective strategy for exchanging Canadian dollars (CAD) for U.S. dollars (USD), or vice versa, within a brokerage account by avoiding typical currency conversion fees. The method involves purchasing a dual-listed Exchange-Traded Fund (ETF) like the DLR.TO ETF, then "journaling" (transferring) those shares to their US dollar equivalent, and finally selling the shares in the US dollar market. This process effectively converts the funds without the direct currency exchange spread charged by banks and some brokers.  

How it Works

1. 1. Buy the CAD-listed ETF:

   You purchase a specific ETF, such as DLR.TO, in Canadian dollars through your brokerage account. This ETF is designed to track the CAD/USD exchange rate. 

2. 2. Journal the Shares:

   You then request a "journaling" transfer of those shares from the Canadian dollar version (DLR.TO) to the equivalent US dollar-denominated version of the ETF, such as DLR.U.TO. This is a share movement, not a currency conversion. 

3. 3. Sell the USD-listed ETF:

   Once the shares are journaled, you sell them in US dollars through your brokerage account. The proceeds from the sale are then available as USD cash, effectively converting your initial CAD into USD at a much lower cost. 

Why it's Cheaper

• Banks and other services typically charge a currency spread—a markup on the exchange rate—that can be 1% or more. 
• Norbert's Gambit circumvents this spread because the journaling process is a movement of shares, not a currency conversion. 
• This method is particularly cost-effective for large sums of money, where the savings on currency exchange fees can be substantial. 

Key Considerations

• Dual-Listed Securities:

  The strategy relies on a security (like the DLR/DLR.U ETF pair) being listed and traded on both Canadian and US exchanges. 

• Brokerage Account:

  You generally need a brokerage account that allows journaling of shares. 

• Time Lag:

  The journaling process takes time, typically a few business days, so it is not an immediate conversion. 

• Suitability:
  It is best suited for larger currency conversions, as the effort might not be worth the savings for small transactions.