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!
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.
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.
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.
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