Stop paying excessive FX commissions with this simple 'hack'

You may have to go to the States to do some shopping, or you may need US Dollars to buy stocks - either way, sometimes you have to convert Canadian Dollars to USD. The large Canadian banks are there to rip you off, charging commissions of 1.5 percent on the exchange. When the market rate is 1.07 CAD per USD, the banks will ask for 1.085 - if you are buying 10,000 USD, their profit is $150. There is a cheaper way to perform the FX transaction, at the transaction cost of 20-30 basis points, or $20-$30 USD in this example.

The method is called the Norbert Maneuvre, and it requires that you have a regular brokerage account (with any of the large banks, RBC Direct, BMO Investorline, and others will do). The trade involves buying and selling the same Exchange Traded Fund (DLR), once settling in CAD, the second time in USD.

The process involves the following steps - I'm showing an actual transaction example of what I did several days ago.

July 21: Buy 5000 shares of DLR for 10.74 a share (outflow of 53700 CAD)
July 22-23: Sell 5000 shares of DLR.U for 9.97 a share (inflow of 49850 USD)
Later on, the brokerage "journals" the two positions, elminating them.

The second transaction required a call to BMO Investorline. I had to make sure the trader sets a limit order at 9.97. There is 1 cent bid/ask spread and, due to low liquidity in the DLR and DLR.U, it takes time to get filled at the ask.

The resulting exchange rate is 1.0772 - note that the market rate on those days was 1.0740, so my transaction cost is 32 basis points, which is significantly better than the bank spread (or the spread the BMO Investorline charges if I used the FX trade.

http://www.canadiancapitalist.com/a-foolproof-method-to-convert-canadian-dollars-into-us-dollars/

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