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

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
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Norbert Schlenker
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Norbert's gambit - Can$ to US$ or vice versa

Post by Norbert Schlenker »

In another thread, a question was asked regarding Norbert's technique for converting Canadian dollars to US dollars or vice versa. Many of the people here came from TWB and learned of the technique when I pitched it there. Because the TWB archive is threatening to disappear imminently, I am going to paste the most relevant pieces in here.

Note that there is nothing sacred about either the broker or the stock named in the commentary below. You can use any discount broker and achieve the same thing. There are usually half a dozen different interlisted stocks that you can use as well.

Some of these comments are not mine and are included for context. If the original posters are offended at my excerpting their words, object and I will edit them out.
On 6 Dec 2001, Norbert Schlenker wrote:Under $10,000, shop around at the local banks.

Over $10,000 and under $1,000,000, you will almost certainly do better than at any bank using the following technique.

1. Open a TDWH Canada account.
2. Deposit your C$.
3. Buy as many MG.A on the TSE as you can for your C$.
4. Sell the same number of MGA on the NYSE and settle in US$.
5. Phone TDWH and ask them to journal the MG.A in your C$ account over to the US$ account.

This moves as much as $100,000 Canadian to US$, at a cost of about C$75, and almost always at darn near spot.

Notes:
- You can use Magna today, but it might be something different by the time you read this.
- You have to use a stock you don't currently own, so as not to run into tax problems.
- The amount you lose on the trades is a taxable capital loss, unlike the bank's spread, which is just a dead loss.
- If you are willing to take a chance, buy the MG.A at the bid and then offer the MGA at the ask. You might do better than spot.
- Do not use any of the exchangeable shares that trade on the TSE.
On 10 Dec 2001, Norbert Schlenker wrote:
George$ wrote:You say it might be better to use something other than Magna. Why?
Because it's the highest priced liquid interlisted stock, so you can move about C$100,000 for C$75. If you don't need to move that much at once, then use something even more liquid, like Barrick or Celestica, as sunrise suggested.

It's actually a poor idea to do the exchange on a day when the market is wild, because you can't guarantee that you can get close to spot. Just wait for a quieter day.

Per your quotes, there is a slight variation from spot. You can play that, if you like, by buying at the bid on one exchange and selling at the ask on the other, but you take the risk that the market moves against you when you do this. It's not a big risk, but it's there.

For today's ratio, assuming you traded at the closing prices, moving $100,000 costs the $75 in commission plus about $100 variation from spot. I defy you to exchange C$100,000 at any other financial institution for $175 total in fees, half of which is a taxable capital loss.
On 17 Dec 2001, Norbert Schlenker wrote:TDWH has their own rules and rules aren't very flexible. Think of WebBroker as a really dumb order clerk who knows a very simple set of rules, because it can't be trusted with anything really complicated and so will refuse anything that looks out of the ordinary.

Call TDWH again and ask them what they would do if the MGA were sitting in the US$ account today. Their answer, as long as you get somebody with sense, will be that they will do the sale in Toronto, no questions asked. (If you aren't talking to someone with sense, ask for their boss, and go up the chain until you have someone with sense.) Remember the name of the person with sense - you'll be calling them again.

No short sale rules apply, because the sale isn't short once you buy MGA in New York. No settlement rules apply, because they can journal the stock in one day and settlement is T+3.

Buy 800 MGA in New York using WebBroker. When you are confirmed, try to sell 800 MG.A in Toronto. The computer will refuse because it is following stupid rules. Take the order number, phone the sensible person that you spoke to before, explain that you have entered a valid order that WebBroker has refused, and get them to execute the sale. Make sure they charge you C$29 on the sale, which is what TDWH promises when WebBroker won't do its job.
On 4 Feb 2002, adrian2 wrote:According to CCRA, a superficial loss occurs when:

1. you, or a person affiliated with you, buys, or has a right to buy, the same or identical property (called "substituted property") during the period starting 30 calendar days before the sale and ending 30 calendar days after the sale; and

2. you, or a person affiliated with you, still owns, or has a right to buy, the substituted property 30 calendar days after the sale.

In George$'s case, both statements apply.
On 4 Feb 2002, Norbert Schlenker wrote:The wording is clear, even in the Act. I hate to admit I'm wrong, but I am. :-(

I must confess utter astonishment. The purpose of the rule is to prevent the realization of a loss for tax purposes when no disposition takes place in an economic sense.

The rule is so broadly drafted, however, that it means that a security purchase followed by a partial sale within 30 days, perhaps simply to stanch the overall magnitude of a loss, falls under the rule. You obey the spirit and the letter catches you.

Maybe George should just claim that the Magna trade is so out of keeping with his normal investment pattern that the 800 shares were done on income account. Then the loss is completely deductible. ;-)
On 30 Oct 2003, Oliver wrote:For a US based investor, there are some problems. I attempted the transaction today. Unfortunately, TDW indicates that the transfer from the US side to the CAN$ side will not happen until the trade settles in three days. :(
On 30 Oct 2003, Norbert Schlenker wrote:Oliver, you're getting a runaround. Call them back and ask them whether you could sell whatever it is you bought in New York today. The answer is, "Yes, sir, three bags full, sir." They know damn well that, on a trade date basis, you're long the shares. If you bought them in New York, you can sell them in New York. Today!

If that's so, then you can sell them in Toronto or on any other exchange with T+3 settlement where they're listed. If TDWH will not do it, it's time for a supervisor. Do not be satisfied by negative responses from ill-trained novices.
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Post by Adastra »

If you have an account with InterActive Brokers, you can exhange currencies with very little slippage.

Example of bid/ask quotes for USD/CDN at one point in time on Feb 9, 2005:
InterActive Brokers: 1.2501/1.2497 spread=.0004
Canadian Bank Discount Broker: 1.2565/1.2375 spread=.0190
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Post by Norbert Schlenker »

Plus a small commission on top per this. Nevertheless, it's an amazingly low number. Thanks, adastra.

Now if only they would hold RRSPs...
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Post by martingale »

You may not need IB to do RRSP's.

There was a bit of academic flurry recently around the notion that the most efficient allocation to taxable/non-taxable accounts may always be to put 100% of the non-taxable account into short-term fixed income, and hold 100% equities in the taxable account. Instead of using the short fixed vs. equity ratio to set the risk level insead choose an amount of margin (or surplus cash) in the taxable account that creates the desired overall risk. So for example someone may wind up holding 90% of your portfolio in fixed income, but that other 10% is heavily leveraged. The net effect of all this should be the same risk/return ratio but with fewer dollars going to the taxman, and in this case, FX savings too.

If that's the strategy you follow then use IB for the equity portfolio and really whatever for the RRSP.
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Post by adrian2 »

martingale wrote:Instead of using the short fixed vs. equity ratio to set the risk level insead choose an amount of margin (or surplus cash) in the taxable account that creates the desired overall risk. So for example someone may wind up holding 90% of your portfolio in fixed income, but that other 10% is heavily leveraged. The net effect of all this should be the same risk/return ratio but with fewer dollars going to the taxman, and in this case, FX savings too.
There are limits to the leverage level one can use (set by your brokerage firm). Many people would find too stressful even moderate amounts of leverage, coupled with a bear market and the associated margin calls.
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Post by George$ »

Help. What is the best web site for watching the ebb and flow of bid and ask being filled on a particular stock?

Years ago I had a good link but I seem to have lost it (because I never used it).

Those of you that buy and sell a lot must use something like this. At present I use TD-WH WebBroker real-time quote display but one must continuously hit "refresh" and I don't get any sense of the depth on the sell and buy side. Or am I asking for too much?

My reason for posting here is that I wanted to use POT (over a brief time interval) on both the US and on the CA market to convert from US$ to CA$ - but first I wanted to study what the activity was like for POT- trade volume, general drift (up or down) etc. I think that ideally one wants a flat (or a rising :) ) market with ample volume for what one wishes to exchange in full.

One of my reasons for using POT is that at present one gets the most $ conversion per 1000 shares (the price being $110us vs $131ca) but the CA daily volume is not that large (about 80,000 shares today I believe).


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Post by dakota »

Norbert Schlenker wrote:Plus a small commission on top per this. Nevertheless, it's an amazingly low number. Thanks, adastra.

Now if only they would hold RRSPs...
A person on another board also made a coment about IB saying that they can't handle "rights" either converting or selling them.
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Post by Arby »

George$ wrote:What is the best web site for watching the ebb and flow of bid and ask being filled on a particular stock?
You can see the price and size of the last 10 trades at Stockwatch. Enter the stock symbol in the box near the top of the page, and click "go".
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Post by dakota »

Arby wrote:
George$ wrote:What is the best web site for watching the ebb and flow of bid and ask being filled on a particular stock?
You can see the price and size of the last 10 trades at Stockwatch. Enter the stock symbol in the box near the top of the page, and click "go".
Thanks Arby, I just used it on ELD and saw that Sprott was the main buyer so I decided to cancel my sell.
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Post by George$ »

Thanks Arby. That is useful and interesting. However, the orders I saw were about 20 minutes late (delayed). (I did not register. Was that why I did not get real time?)

I could get real time quotes via my WebBroker account and I could follow a real-time chart at MSN Money which also shows the price and volume movement with time. This was true for POTus (but I could only get a delayed historical chart for POTcan).

In any case I did do my $ conversion about 40 minutes ago via two trades, buying 1000 POT at 110.20us and selling at 130.30ca for a conversion rate of 1.182 can/us. It seems in line with the Yahoo Finance exchage rate showing at about that time. My broker fee for the two trades was @29us + $29can.

It's an interesting exercise in that one gets some sense of the market liquidity and up and down noise for this particular stock (on this particular day).

Does oneyone here have any knowledge how the foreign exchange desk at TD might work? How much margin do they factor in individually for noise, for overhead, for profit, for etc - when they set their bid and ask spreads for the US $?
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Post by Gus »

I just used Norbert's Gambit to transfer about $60k from into my USD CIBC Investor's Edge account. I bought and sold 1000 Talisman shares. My story...

As other posters have reported with other brokerages, the IE system balked when I tried to sell the shares I had just bought in Toronto on the New York exchange. Once I phoned, the IE agent told me that I would have to wait a few days to complete the sale and journal the shares to my USD account and, even then, I couldn't sell the stock in New York even if they were in my USD account.

I demurred and asked to speak to his supervisor. "Any other agent will tell you the same thing" he told me. "Are you telling me you won't let me talk to your supervisor?" I asked. (It's nice to know that these calls are recorded). A few minutes later I received an apology, with the agent saying that he didn't realize that the TLM stocks in TO and NY have the same CUSIP number, so they indeed can be sold on either exchange.

He then put the sale through for me but I had to argue again to get him to charge the fee that would have been paid had I been able to do the trade on-line.

From buying to selling took me 25 minutes. I bought and sold at market, so the trades themselves were practically instantaneous. During the interval, TLM fell about 20 cents, so I lost a little capital. I checked with IE to see what rate I could have got had I just transferred this amount of cash. In round numbers, I saved about $200 using Norbert's Gambit and would have saved about $200 more if I could have executed the sale immediately without having to argue with IE or if the stock had not fallen.

The bottom line: this is worth doing, but be prepared for a fight and an uncertain outcome.

Thanks, Norbert
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Post by Bylo Selhi »

Gus wrote:The bottom line: this is worth doing, but be prepared for a fight and an uncertain outcome.
Are you a President's Account client? If not, then I'm thinking that maybe TD's claim that their "dedicated" PA reps are more "experienced" may be true.

And also if not, I'd be happy to post the "exclusive" PA client 1-800s from coast to coast as a public service for FWFers who are still aspiring to PA status. I suspect that even if you're not a PA client they'll still take the call and execute your trade.
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Post by like_to_retire »

this is worth doing, but be prepared for a fight and an uncertain outcome
Norberts Gambit gamble ? :wink:
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Post by George$ »

Gus wrote:The bottom line: this is worth doing, but be prepared for a fight and an uncertain outcome.
Of course the uncertainty is both in the plus direction and the minus direction. (Your shares can go up or down during the time it takes to do the full transaction.) I like them odds.

At the foreign exchange desk THEY keep the plus side and give you the minus. :wink:
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Gus wrote:From buying to selling took me 25 minutes. I bought and sold at market, so the trades themselves were practically instantaneous. During the interval, TLM fell about 20 cents, so I lost a little capital.
I recall deciding not to go "at market" because I judged the sales going up and down, -- so used "bid" and "asked" and did fill my order on my terms. I know I took some risk that the market could have run away from me. But I watched and judged that the + - noise would cover my modest demand (for the "right" exchange" rate). It did.
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Post by yielder »

Bylo Selhi wrote:I suspect that even if you're not a PA client they'll still take the call and execute your trade.
Don't bet on it. When you give your account number, they can tell whether or not you are a PA customer. I've been told that they won't deal with you. I don't see why they would. They're staffed to handle x number of accounts. Having to handle x+ would result in a deterioration of service. If that were to happen, I can think of a blonde-ism that applies. ;)
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Post by Bylo Selhi »

yielder wrote:a blonde-ism
Yabbut the reason I made my suggestion is because I have studied the system carefully ;)

I have trading authorization on my wife's accounts. Even before she had PA status I could call in on the PA number and transact on her behalf. No one ever asked where I got that number. Perhaps they saw that my accounts were PA, however I didn't give them the account numbers nor do I recall that they asked.

Then again, that was a few years ago. They may have since followed the blonde one's advice and tightened up their system :twisted:
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Post by Gus »

Bylo Selhi wrote:
Gus wrote:The bottom line: this is worth doing, but be prepared for a fight and an uncertain outcome.
Are you a President's Account client? If not, then I'm thinking that maybe TD's claim that their "dedicated" PA reps are more "experienced" may be true.

And also if not, I'd be happy to post the "exclusive" PA client 1-800s from coast to coast as a public service for FWFers who are still aspiring to PA status. I suspect that even if you're not a PA client they'll still take the call and execute your trade.
No, I'm with the CIBC, for no other reason than inertia and because the CIBC had the nearest branch to the office I worked in when I moved to Canada in 1981. (Since closed.) I dunno if CIBC has a similar plan to the TD's President's Account. I did mention rather angrily to them how much money I have entrusted with them and I think that made a difference.

Yes, blonde, money does indeed talk and, as Dylan once told us, it can even swear.
George$ wrote:
Gus wrote: The bottom line: this is worth doing, but be prepared for a fight and an uncertain outcome.
Of course the uncertainty is both in the plus direction and the minus direction. (Your shares can go up or down during the time it takes to do the full transaction.) I like them odds.
Me too - logically but not emotionally. I'm only going to flip this coin a few times in my life, so the statistics might not work out in my favour - my body will likely revert to soil before my stock flips revert to the mean.

I chose "market" rather than trying to make a few bucks trying to profit on the bid/ask spread because the spread was narrow (the stock being actively traded on both exchanges) but I wanted closure, since the stock is relatively volatile
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Post by yielder »

Bylo Selhi wrote:
yielder wrote:a blonde-ism
Yabbut the reason I made my suggestion is because I have studied the system carefully ;)
I was thinking about money talks.
Perhaps they saw that my accounts were PA, however I didn't give them the account numbers nor do I recall that they asked.
All accounts at the same address are given PA status. My oldest daughter who has moved out into student housing but still uses us as a mail drop and has PA status.

It might be possible to convince TDW that while individual accounts at the same address don't qualify for PA status, on a combined household basis they do.
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yielder wrote:All accounts at the same address are given PA status. My oldest daughter who has moved out into student housing but still uses us as a mail drop and has PA status.
Hmmm... that's not what they told me when my wife's accounts were just under the threshold but mine were well past it.
It might be possible to convince TDW that while individual accounts at the same address don't qualify for PA status, on a combined household basis they do.
Nope. They told me that all accounts, e.g. taxable and RRSP, for an individual are combined to determine PA status. Even joint accounts didn't qualify, let alone something more esoteric like a holdco where all shareholders are themselves PA clients.

Maybe I should have studied the system more carefully and/or made our money talk louder and/or contributed money to the NLT in order to achieve 10%er (discount) status sooner ;)
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Post by like_to_retire »

I chose "market" rather than trying to make a few bucks trying to profit on the bid/ask spread because the spread was narrow (the stock being actively traded on both exchanges) but I wanted closure, since the stock is relatively volatile
I don't know guys, (with respect), I think you're all a bit wonky using this trick to save such small amounts of cash. You're messing with $60K on a volatile stock at market, all to save $200? What if the level one layer gets eaten up and the level two was further along than you expected? Anything can happen.... I can think of a lot of downside here.

I can't imagine that the risk/reward is worth it.............. ltr
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Post by Gus »

like_to_retire wrote:
I chose "market" rather than trying to make a few bucks trying to profit on the bid/ask spread because the spread was narrow (the stock being actively traded on both exchanges) but I wanted closure, since the stock is relatively volatile
I don't know guys, (with respect), I think you're all a bit wonky using this trick to save such small amounts of cash. You're messing with $60K on a volatile stock at market, all to save $200? What if the level one layer gets eaten up and the level two was further along than you expected? Anything can happen.... I can think of a lot of downside here.

I can't imagine that the risk/reward is worth it.............. ltr
You're at least partly right. :?

In addition to the stock volatility there is the currency volatility: if I had waited until today to do the trade I would have lost about $400 in day-to-day currency fluctuations alone. Also, the FX rates quoted to me by CIBC for this amount of money were a lot more favourable than I had assumed. So the small profit "signal" can easily be lost in the market "noise".

On the other hand, if a contractor offered me a price to do a job on my house and I could save a few hundred dollars by doing it myself, in an hour or so of work, I wouldn't hesitate to DIY. Comparing this saving to daily fluctuations in the local real estate market wouldn't seem relevant to the decision.
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like_to_retire wrote:I can think of a lot of downside here. I can't imagine that the risk/reward is worth it.............. ltr
There could also be a lot of upside. I would think the likelihood of something that causes a stock to gain or lose 2% or more of its value in a matter of a few minutes is very small. If that's a concern, then don't use this technique.

But bear in mind that similar risks exist even if you do a standard FX at 2% vig. Some event could occur a short time later that costs you (or saves you) even more based on the change in exchange rate. It's not that unusual for even the loonie to rise or fall by 1% against the greenback in a day. How do you "protect" yourself (or profit) from that?
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Post by George$ »

like_to_retire wrote: Anything can happen.... I can think of a lot of downside here.
I can't imagine that the risk/reward is worth it.............. ltr
It's optional of course. If the possible downside alarms you, don't do it.

I would still argue that this is the smart thing to do.
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Post by zaman »

I have a question about this, how long after the trade can you transfer your money out of the account? Do you have to wait 3 days?
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