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Low Cost Currency Conversion with DLR/DLR.U ETF

sailor(Ocean & Mountain)

https://www.milliondollarjourney.com/low-cost-currency-conversion-with-dlrdlr-u-etf.htm

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?

(#166526@43)
Last Updated: 2019-4-5
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Replies, comments and Discussions:

  • 美元换成加币，听说有一种办法是在股票账户里同时买卖以美元和加元双币种计价 ETF ，比如先买入DLR-U.TO，再立即卖出DLR.TO，如果使用这种方式换汇 , 到底 能 省 多少钱？ i.e. $USD1000 -microtree(micro tree); 2018-10-17 (#165813@43) +4
    • 中间要经过个 journal 环节 -vicky2005(孩子她爹); 2018-10-17 (#165814@43) +1
    • depends on the broker, 比如，Questrade 需要三天才能settle transaction, 所以，如果journal，要承担汇率变化的风险，RBC Direct investing 当天可以买卖，所以汇率的风险几乎没有。成本只是两个transactions的commission，相比直接换钱一般收2%费用。 -mocarly(放下); 2018-10-17 (#165815@43) +1
      • 有人知道TD Web broker怎么做journal吗？必须打电话，还是怎么弄？ -ebusiness(努力+好运=成功); 2018-10-18 (#165817@43) +2
        • TD 必须要打电话，让给journal over，会charge$45的。rbc就完全可以自己在网上换。Google Norbert’s gambit. -yoyodi(悠悠); 2018-10-18 (#165818@43) +1
    • 多谢 。 新公司 WealthSimple trade , no minimum balance , 佣金$ 0 ， 也许可行了。 -microtree(micro tree); 2018-10-17 (#165816@43) +1
      • 广告贴？付费了吗？LOL -dontknowa(dontknow); 2018-10-26 (#165824@43) +1
    • 不一定要etf，任何在美加两个市场都上市的股票都可以，选波动小的，比如r b c -yoyodi(悠悠); 2018-10-18 (#165819@43) +1
    • Low Cost Currency Conversion with DLR/DLR.U ETF -sailor(Ocean & Mountain); 2019-4-5 {3867} (#166526@43) +1

      https://www.milliondollarjourney.com/low-cost-currency-conversion-with-dlrdlr-u-etf.htm

      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?

      • Good strategy! -mantis(悠着点上网的皮皮虾); 2019-4-5 (#166527@43) +1

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