Norbert's gambit - Can$ to US$ or vice versa

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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by nielkfj »

I'm a US citizen comfortable using Canadian banks to do NG's, but I would think you could also use big Canadian oil/gas/pipeline companies. Typically, they're interlisted, too.
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Did you get any professional advice from an accountant or tax lawyer about whether or not Canadian bank stocks are PFICs?

I just did my first four NG transactions yesterday on four different accounts using Enbridge stock (ENB). I'm not so concerned about using Canadian bank stocks, but I figured ENB was a better choice due to it's higher trading volume than the banks. The fact that it is (highly) unlikely to be considered a PFIC is a bonus.
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by always_learning »

nielkfj wrote: 11 May 2017 10:54
I'm a US citizen comfortable using Canadian banks to do NG's, but I would think you could also use big Canadian oil/gas/pipeline companies. Typically, they're interlisted, too.
a_l
always_learning:

Did you get any professional advice from an accountant or tax lawyer about whether or not Canadian bank stocks are PFICs?

I just did my first four NG transactions yesterday on four different accounts using Enbridge stock (ENB). I'm not so concerned about using Canadian bank stocks, but I figured ENB was a better choice due to it's higher trading volume than the banks. The fact that it is (highly) unlikely to be considered a PFIC is a bonus.
No, I didn't get any (offline) professional advice from an accountant or tax lawyer about whether or not Canadian bank stocks are PFICs. I got my information from the Bogleheads wiki and from the FWF discussion (and links) here.
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by nielkfj »

I've run into a snag with some Norbert's Gambit transaction that I completed last month. To explain the problem here is a timeline events:

May 10th: Completed NG with Enbridge stock (ENB) from CAD to USD
May 11th: ENB ex-dividend date.
May 12th: Effectively all USD funds re-invested in other securities. I have only a small USD balance.
May 15th: Settlement date for NG transactions.
May 17th(?): Shares auto-journaled from CAD to USD accounts.
June 1st: ENB dividend credited to CAD account, and deducted from USD account. I now have a negative cash balance on my USD account. Investorline tells me that these transactions occurred because the ENB shares were not journaled until after the ex-dividend date.
June 2nd: Investorline initiates an auto FX transfer of funds from my CAD account to USD account to clear the negative USD cash balance.

Naturally I lost some money as a result of all this because the June 2nd FX transfer was performed with BMO's exorbitant USD/CAD exchange rate. So in the end more money was deducted from my CAD account for the FX transfer on June 2nd than I received for the CAD dividend payment on June 1st.

The root of the problem was the dividend transactions on June 1st. So my question is, are these dividend transaction on June 1st justified, or was it a screw-up on Investorline's part?
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by Arby »

nielkfj wrote: 26 Jun 2017 20:38 The root of the problem was the dividend transactions on June 1st. So my question is, are these dividend transaction on June 1st justified, or was it a screw-up on Investorline's part?
See the finiki article about Norberts Gambit

"Pitfalls and problems
...
Some stocks you could use pay dividends, e.g. the big Canadian banks. Avoid such stocks just prior to ex-dividend dates, because you will end up collecting a dividend on one side of the account and paying it out on the other. In a taxable account, the dividend you collect is taxable income and the dividend you pay is not deductible. In a registered account, the deemed payment out of the account runs afoul of other tax rules."
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by SQRT »

I just completed a gambit using CM ( as always). It's possible I got caught with a dividend. Journaled shares yesterday which was X div date. Will let you know. Will be more careful next time.
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by bluesky9845 »

Planning to convert 200K CAD to USD in a questrade margin account. Steps as follows:
1. Short sell RY (NYSE) in USD margin account; make sure order is executed before moving to next step (takes a few min? Can someone confirm?
2. Buy RY.TO (TSE) in CAD margin account;
3. Call/chat with questrade rep to request journaling of shares (from RY.TO to RY?)
4. Wait a few days for completion of journaling. And then sell RY.

Besides avoiding close to divident day, wild market day, and major US and Canadian holidays, any other points that I need to pay attention?

Any help/suggestions are greatly appreciated!
Last edited by bluesky9845 on 28 Jun 2017 15:26, edited 5 times in total.
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by nielkfj »

@Arby:

Cripes! I wish I had known about that Finiki beforehand. Live and learn.

When I discovered the dividend transactions a couple weeks ago I inquired about it with IL. Since then they entered offsetting dividend transactions on the same date in both my CAD and USD accounts. So, they told me the dividend transactions shouldn't appear on my T5 statement. I performed the same NG transactions on registered accounts also with the same dividend transactions appearing - something I'll have to deal with if it becomes an issue.

Before I did my NG transactions on May 10 I actually did check the ex-dividend date for ENB and knew that it was the following day. However, I figured it shouldn't cause a problem since the net shares I would own on May 11th would be zero. I wanted to get it done so I didn't bother to investigate for any consequences.

In all I did the NG on four accounts (LIRA, RRSP, TFSA and non-registered). I did the LIRA account first while on the phone with IL and the IL rep put in the journaling request while we were on the phone. But for the other accounts I did NG online without any assistance from IL, but I didn't request the journalling until the settlement date. (At that point IL advised me it was best to allow the system to auto-journal the shares, but regardless it was already after the ex-dividend date.) As it turned out, for the LIRA account there were no dividend transactions since the journalling was completed the same day that I did the NG.

Lessons learned: Make sure the journalling is completed prior to the ex-dividend date of whatever stock you are using. For IL, journalling can be completed the same day if the request is put in early enough - no exact cut-off time specified by IL.
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by SQRT »

SQRT wrote: 27 Jun 2017 08:46 I just completed a gambit using CM ( as always). It's possible I got caught with a dividend. Journaled shares yesterday which was X div date. Will let you know. Will be more careful next time.
Thought about this some more. As long as I journal the shares before the div record date I should be OK. Obviously you need to have the shares settled before you can journal them, so if you do the trade before the X div date and promptly journal them before the record date you should be OK.
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by Cincinnatus »

Undertook an interlisted stock gambit at RBC Direct Investing using CIBC. This represented the first time that I did not use DLR to effect the exchange. Sold CM short in New York (interesting quirk of RBC is that you have to specifically select 'sell short' rather than 'sell' as the order type), and then immediately bought in Toronto. Wound up chatting with one the registered traders at Direct Investing, and was told that I would have to call in on settlement to journal the position. I was under the impression that RBC's system did this automatically, but the rep stated that this would no longer occur due to the implementation of real-time foreign exchange transfers. I don't particular see how automatic conversion at a rate related to real time spot rather than the closing rate (cost certainty for clients at the time of trade) relates to automatic journaling of dual listed securities, so am willing to put this down to a mistake by the trader (he also assumed that I had shorted CM in the US market in error). Will see what happens when the trades settle!
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by Lumute »

Hi Everyone,

We purchased a house with closing date of Sep 1st and have some of the funds for the down payment in USD and was wondering about using NG to convert these funds to CAD. I have DI accounts (Margin and TFSA accounts) that I use but have never done this and would really appreciate your advice on the following:

The most important thing of course is have the money available on Sep 1st, is there any kind of hold or wait period transfer the money out of the DI account into the bank account? these are the transactions I would have to do:

- Money in TFSA (Cash) in USD, would have to NG and transfer to Bank Account
- Money in USD Bank Account, would have to transfer into DI Margin Account, NG and transfer back to Bank Account

Also, Cincinnatus, how did it go for you? is this new real-time foreign exchange transfers thing a problem for NG with RBC DI?

Thanks so much to all in advance for your help, advise...

G
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by Quebec »

This Justin Bender video explains how to convert CAD to USD with the Gambit at Questrade, using DLR.TO and DRL.U.TO, within a RRSP account. In the example he uses an amount of only 2000 CAD. I initially thought ''hey, this is way too small an amount, it won't be worth it''. But then I remembered that buying DLR.TO will cost a few cents only (ECN fees of 52 cents in the example) and selling DLR.U.TO will be a bit over $5 (5.50 USD in the example). I imagine that foreign exchange fees at Questrade in RRSP accounts are still over 1%, which would be 20 CAD here. So if someone is not in a hurry (5 business days in the example), and wants so save a few bucks, the Gambit would be worth it even on $2k. Maybe I'll try this next time. Does anyone know how the Questrade people react when you call them and ask to ''journal DLR.TO shares to DLR.U.TO shares''? How painful is this?
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by adrian2 »

Just did a couple of gambits CAD -> USD, low 6 figures each, using RY, for a friend who has purchased Florida real estate. Still have one batch to go, as he's hoping for an even better forex.

All-in cost = 7 bps, as measured by the actual forex realized vs. Bloomberg real-time rate. The stock moved the wrong way 2 or 3 pennies in the minute or so between the orders.

Unexpected roadblock encountered today, after settlement, trying to transfer the first 6 figures amount from TDW US$ to a TD Bank US$ account, online limit apparently $100k, I've phoned them, they took the instructions and said it has to be done manually by the back office on Tuesday. No biggie.
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by SQRT »

adrian2 wrote: 02 Sep 2017 10:26

Unexpected roadblock encountered today, after settlement, trying to transfer the first 6 figures amount from TDW US$ to a TD Bank US$ account, online limit apparently $100k, I've phoned them, they took the instructions and said it has to be done manually by the back office on Tuesday. No biggie.
Yes, they have a $100k limit so needs to be manual. Usually same day.

I screwed up on Thursday when I sold some shares of TD from my CDN margin account. This is my normal quarterly liquidation. In my rush I sold in the US market by mistake. Realized it almost immediately. Called them and told them to transfer the trade to my US account and journal the shares to cover the sale. This way I will get settled in USD which I can always use. If it had settled in my CDN account they would have converted to CDN at a lousy FX rate.

Then I realized that this may not be a bad thing to do in future. Ie use my regular liquidations to fund my USD requirements. My planned liquidations just about cover my USD requirements. Will need to keep track of the FX rate at trade to calculate cap gain. Not too difficult.
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by jokerit »

I just did the gambit at CIBC IE using DLR without too much trouble. I followed Justin Bender's step by step:
https://www.pwlcapital.com/en/Advisor/T ... tor-s-Edge

The key part is explaining to the trader what you're trying to do, then they get it and can complete the trade selling DLR.U on the Canadian exchange from the USD side without problem. There is a stock DLR on one of the US exchanges; you definitely do not want to transact that one!
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by Mordko »

Quebec wrote: 02 Sep 2017 07:12 Does anyone know how the Questrade people react when you call them and ask to ''journal DLR.TO shares to DLR.U.TO shares''? How painful is this?
Not at all painful. I usually use their chat rather than the phone. Takes about 3 minutes. Never had any arguments. Probably wouldn't do this for the sake of converting $2K though; not worth the effort.
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by Ken »

I have used the gambit only a few times over the years and with mediocre results. Most of the problem is waiting for the trades to settle and show up in my account. More like a 5 to 7 business days than the advertised 3 days.
Now it's time to try again so I reread Finiki and CouchPotato and Justin Bender articles but most of those are at least a few years old and every institution is different so I checked this topic for Scotia iTrade and found nothing recent.
So here is my proposed gambit for discussion. I'd greatly appreciate it if one of you has done exactly this recently and can provide some tips.

I have a Scotia iTrade non-registered margin account and I need to convert from USD to CAD.
1/ Sell DLR on the CAD side of my account
Is this allowed because it's a margin account? I have NEVER used the margin ability of my account so I'm a newbie in that. Or do I need to activate "short selling" ?
2/ immediately that the trade is confirmed buy DLR.U on the USD side of my account
This is no problem... I have US cash.
3/ ??? should it all get cleared and journalled automatically? Do I need to journal it online? Do I need to phone them?

Thanks all.
Ken
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by milton »

jokerit wrote: 26 Oct 2017 11:04 I just did the gambit at CIBC IE using DLR without too much trouble. I followed Justin Bender's step by step:
https://www.pwlcapital.com/en/Advisor/T ... tor-s-Edge
Besides the need to watch out for dividend dates, what are the pros and cons of using DLR versus using an interlisted stock such as Royal Bank (RY) to gambit?
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by adrian2 »

milton wrote: 17 Dec 2017 17:45 Besides the need to watch out for dividend dates, what are the pros and cons of using DLR versus using an interlisted stock such as Royal Bank (RY) to gambit?
Say your gambit requires a nice round 1000 shares to trade. A penny spread for 1000 shares is $10, in addition to any commission.
With DLR, 1000 shares controls $10k worth of gambit money.
With an interlisted stock worth $100, the same 1000 shares controls $100k worth of gambit money.

I have never used DLR, reason as above.
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by tmo72 »

I used the shorting method to execute the gambit on TDW... shorted CM first on the USD side and bought it back on the CAD side. I did it in that order to avoid shorting against the box. But when I called in to journal the shares, the trader warned that I probably violated the rule anyways.

I shorted first as recommended on the wiki. Have the rules changed or was the agent mistaken? He said I should have called in to execute the gambit (for an increased fee).

I've executed the gambit this way before and didn't and didn't have a problem.
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by ig17 »

tmo72 wrote: 18 Jan 2018 20:03 I used the shorting method to execute the gambit on TDW... shorted CM first on the USD side and bought it back on the CAD side. I did it in that order to avoid shorting against the box. But when I called in to journal the shares, the trader warned that I probably violated the rule anyways.

I shorted first as recommended on the wiki. Have the rules changed or was the agent mistaken? He said I should have called in to execute the gambit (for an increased fee).

I've executed the gambit this way before and didn't and didn't have a problem.
As far as I can tell, the shorting method was first mentioned on Page 2 of this thread. See Adrian's post from Jan 17, 2007:

http://www.financialwisdomforum.org/for ... 46#p179146

It's been 11 years at the very least. I think it's actually been longer than 11 years - I'm pretty sure we discussed the shorting method on the old TWB board before 2005. Many of us here used that trade throughout those years. If the trade is against the rules, why didn't they change their system to disallow it? I think he is mistaken.
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by adrian2 »

tmo72 wrote: 18 Jan 2018 20:03 I used the shorting method to execute the gambit on TDW... shorted CM first on the USD side and bought it back on the CAD side. I did it in that order to avoid shorting against the box. But when I called in to journal the shares, the trader warned that I probably violated the rule anyways.

I shorted first as recommended on the wiki. Have the rules changed or was the agent mistaken? He said I should have called in to execute the gambit (for an increased fee).
The agent was mistaken.

Friendly advice: do not call to journal until the trade has settled. If you insist and do it before, the agents get frustrated that they have to override their software limitations and come up with bullshit reasons to discourage you to do it again.
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by ig17 »

Also, don't give them more details than they need to know. Give them a simple straightforward instruction: please journal X shares of company Y from sub-account A to sub-account B.

They might have their own internal rule that puts the shorting method offside. So what. The trade is legal.
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by adrian2 »

ig17 wrote: 18 Jan 2018 21:42 Also, don't give them more details than they need to know. Give them a simple straightforward instruction: please journal X shares of company Y from sub-account A to sub-account B.
:thumbsup:

How I give them the instructions:
"This is about the account xxx-F, where I have 200 shares of RY, trade settling today. [wait for the agent to confirm]
I also have a short position of 200 RY shares in my xxx-H account, also settling today. [wait for the agent to confirm].
Please flatten the positions. [wait for the agent to read back that I want 200 RY shares to be journaled from xxx-F to xxx-H]
Yes, please go ahead.
Thank you!"
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by tmo72 »

adrian2 wrote: 18 Jan 2018 21:45
ig17 wrote: 18 Jan 2018 21:42 Also, don't give them more details than they need to know. Give them a simple straightforward instruction: please journal X shares of company Y from sub-account A to sub-account B.
:thumbsup:

How I give them the instructions:
"This is about the account xxx-F, where I have 200 shares of RY, trade settling today. [wait for the agent to confirm]
I also have a short position of 200 RY shares in my xxx-H account, also settling today. [wait for the agent to confirm].
Please flatten the positions. [wait for the agent to read back that I want 200 RY shares to be journaled from xxx-F to xxx-H]
Yes, please go ahead.
Thank you!"
Thanks to both of you. He actually asked me why I was doing that, so I told him it was forex. I've never had a trader question my instructions before.

The trades were settled, but he had to message the back office to journal — so maybe that's why he was trying to discourage this.
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by ig17 »

adrian2 wrote: 18 Jan 2018 21:45
ig17 wrote: 18 Jan 2018 21:42 Also, don't give them more details than they need to know. Give them a simple straightforward instruction: please journal X shares of company Y from sub-account A to sub-account B.
:thumbsup:

How I give them the instructions:
"This is about the account xxx-F, where I have 200 shares of RY, trade settling today. [wait for the agent to confirm]
I also have a short position of 200 RY shares in my xxx-H account, also settling today. [wait for the agent to confirm].
Please flatten the positions. [wait for the agent to read back that I want 200 RY shares to be journaled from xxx-F to xxx-H]
Yes, please go ahead.
Thank you!"
I gave them less details the last couple of times I used this trade. They don't need to know that you are short 200 RY shares in -H account. The system flattens the positions automatically once the journal is done. All you need to tell them is please journal 200 RY shares from sub-account -F to sub-account -H.
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