Converting CAD to USD to buy US stocks or ETFs can be expensive due to currency conversion fees. Many institutions charge a 1-2% fee on top of the exchange rate, which can be a huge fee if you are converting a large sum.
One of the best ways to avoid these fees is by using Norbert’s Gambit. In this guide, I’ll walk you through how to use Norbert’s Gambit on Questrade to efficiently convert CAD to USD and purchase US-listed ETFs like SPUS or HLAL within a Tax-Free Savings Account (TFSA).
Norbert's Gambit costs a fixed fee of two trades (~20 CAD as of writing today) no matter how much you are converting. For example, if you are converting $2000 CAD to USD, the fee is $20 CAD. If you are converting $10,000 CAD to USD, the fee is still $20 CAD. This makes Norbert's Gambit very cost-effective for large amounts of money. If you were to convert $10,000 CAD to USD using a traditional method, you would be charged a 1-2% fee on top of the exchange rate, which would be $100-$200 CAD.
The reason we are not using Wealthsimple for this process is because as of writing this post, they do not support Norbert's Gambit.
Questrade UI (User Interface) is always changing so I'll try to keep the steps generic enough to be applicable to any version of the app.
Step 1: Open a Questrade Account
To get started, you need a Questrade account if you don’t already have one.
- Visit the Questrade website.
- When creating your Questrade account, be sure to use my referral code 745627973479086 to get a welcome bonus!
- Choose the account type you want to open. For this guide, we will focus on a Tax-Free Savings Account (TFSA).
- Fill out the personal details such as name, address, and employment information.
- Upload the necessary identification documents.
- Submit your application.
Questrade typically approves accounts within a few days. Once you’re approved, you can log in and move to the next step.
Step 2: Open a TFSA Account
If you didn’t open a TFSA during the signup process, you can do so after logging into your Questrade account.
The TFSA allows for tax-free growth, making it an excellent option for long-term investing.
Step 3: Fund Your Account with CAD
Once your TFSA is open, you’ll need to fund it with CAD to start the Norbert’s Gambit process.
There are multiple methods on how to fund your account. Choose the one that works best for you.
Step 4: Buy DLR.TO (Horizons US Dollar Currency ETF)
To perform Norbert’s Gambit, we use an ETF called DLR.TO. This ETF trades in CAD and tracks the US dollar, allowing us to convert CAD to USD without paying the usual currency conversion fees. Instead, we pay a trading fee when purchasing DLR.TO, and another when selling DLR.U.TO (the USD variant). This usually ends up being $20 CAD overall. Therefore Norberts Gambit is only worth it if you are converting a large amount of money (>$2000) since the trading fee is fixed at $20 CAD.
- Go to the Trading section in your Questrade account.
- Search for the ticker symbol DLR.TO.
- Buy an amount of DLR.TO that matches how much CAD you want to convert to USD. For example, if you want to convert $5,000 CAD to USD, buy $5,000 worth of DLR.TO shares.
- Select Market as the order type if you want to buy the ETF at the current market price, or Limit if you want to set a specific price. I recommend using Market to ensure the trade goes through quickly.
- Submit your order.
It might take a few minutes to a few days for the order to be filled, depending on the market conditions and whether you placed a market or limit order.
Step 5: Journal DLR.TO to DLR.U.TO (USD Variant)
Once you’ve purchased DLR.TO, you need to "journal" it to the USD version, DLR.U.TO. Questrade doesn't have an automatic way to do this online, so you’ll have to contact customer support.
- Open a support live chat (preferred) or call Questrade’s customer service.
- Ask them to journal your DLR.TO shares to DLR.U.TO. This process will convert your CAD-traded shares to USD-traded shares of the same ETF.
- The journal process typically takes 1-2 business days.
Step 6: Sell DLR.U.TO for USD
After the shares are journaled, you can sell DLR.U.TO to get USD in your TFSA.
- Go to your Questrade account and search for DLR.U.TO.
- Sell your shares of DLR.U.TO.
- You will now have USD in your TFSA, ready to purchase US stocks or ETFs.
Step 7: Buy US-listed ETFs (SPUS or HLAL)
With USD in your account, you can now buy US-listed ETFs like SPUS (a Shariah-compliant ETF following the S&P 500) or HLAL (Wahed Invest’s Shariah-compliant ETF).
- Go to the Trading section.
- Search for the ticker symbol SPUS or HLAL.
- Place an order to buy the ETF of your choice using the USD you’ve converted.
- Confirm the trade.
Final Thoughts
Norbert’s Gambit is a great way to minimize currency conversion fees when investing in US stocks or ETFs through Questrade. With a bit of patience and some understanding of the process, you can save significantly over time especially if you are converting large amounts of money.
Make sure to monitor your contributions to stay within the TFSA contribution limits to avoid penalties. Learn more about TFSA contribution limits on my post about Guide to Investing with Islamic Principles.
Check out a very comprehensive guide on Norbert's Gambit here