Low Cost Currency Conversion with DLR/DLR.U ETF


A pet peeve of mine is the fee that discount brokers charge for currency conversion, some as high as 2.5% each direction.  This fee creates an additional drag on investment returns, especially on larger trades.

For example, say I wanted to purchase $10,000 worth of Walmart stock with Canadian dollars.  If I did a straight purchase with Canadian dollars with my Questrade account, the fee (on top of the spot rate and commission) would be 1.99% or $199.  The shares would need to increase by almost 2% just to break even on the trade. To look at it another way, the $199 is almost enough to purchase three additional shares.  There has got to be a better way right?  Keep reading!

The Strategy

I stumbled across a thread on Canadian Money Forum (and Canadian Capitalist) that discussed a relatively easy and low risk method of saving money on currency conversions.  Curious?  It’s through using Horizons DLR and DLR.U ETFs.

At a high level, you would buy DLR through your Canadian account then sell DLR.U on the US side.  DLR will track the CAD/USD exchange, so once you purchase the ETF, you have locked in your exchange rate.

The Step by Step Procedure

I used this strategy with my Questrade account, which was pretty straight forward with the added benefit of not having to pay the buy commission because DLR is an ETF.

  1. Buy DLR. Purchase DLR using a limit order with your Canadian trading account.  As of May 24, 2013, DLR costs $10.31.  So if you want to exchange $10,000 CAD, purchase approximately 970 shares (total $10,000.70)
  2. Journal the Shares. Contact Questrade support (via phone or online chat) and request to journal the shares to your US account as DLR.U.  There should be no fees to journal the shares over. You may have to wait 3 business days for your trade to settle before they can journal the shares.
  3. Sell DLR.U. Once the shares are in your US account, sell DLR.U using a limit order. As of May 24, 2013, DLR.U costs $9.97 and selling 970 shares will net you $9,670.90.  With xe.com (spot rate) quoting  0.96941, this strategy gives you 0.96702.  You have now exchanged your Canadian dollars into US dollars at a relatively low cost.

The Savings

So now that you have some CAD exchanged to USD, how much did you save?  Using this strategy results in paying a fee of approximately 0.20% – 0.25% (plus spot rate and commissions) compared to 1.99%.  On $10,000 CAD, that’s a savings in the tune of $180.  Do this a few times throughout the year, and the savings become significant.

Final Thoughts

Using DLR/DLR.U ETF combination for foreign currency exchange (CAD/USD) is a low cost and low risk strategy that I’ll likely being using a lot over the years.  My instructions above are for Questrade, but have any of you used this strategy with other Canadian discount brokers?

-sailor(Ocean & Mountain) 2019-4-5