Friday, September 21, 2018

Norbit's Gambit - Some Downsides

Back in early 2016 when I was first looking into how to buy $TSLA shares before the Model 3 unveil, I discovered a currency exchange strategy called Norbit's Gambit. Since then I've used it for all of my conversions from CAD to USD in order to purchase shares on the US Market.

There are plenty of resources out there to teach you how to use Norbit's Gambit to save on currency exchange fees. Here's the one I originally used:



There's a couple of things I am doing (or not doing) that does create some disadvantage. Don't get me wrong -- this is still the most affordable way to convert my money to USD. But it's not a perfect system.

The Wait

When you contact your broker to journal over your shares, you have to keep the completion timeline in mind. There's a wait for your trade to settle, which can take 2-3 business days. Then there's another 2-3 days for the request for switching your DLR.TO to DLR.U.TO (essentially another wait for settlement) before the funds reappear in your account. But this time, the stock you may have changed substantially in price. So a quick purchase is not possible. It's best to take care of this step (about a week's worth of wait) and have the funds sitting in your account waiting for a purchase opportunity.

Closing An Account

I ended up closing an account in exchange for opening an RRSP account (Canadian version of Retirement Savings). In this case, I chose to withdraw the funds from my margin account, and make a transfer to my new RRSP account from another existing one at one of my banks. And I recognized that if you choose to convert through Norbit's Gambit, you can only convert as much as you are able to buy DLR shares. There will always be a leftover. I was able to transfer the leftover to my new RRSP account, but I'm not recognizing there may be some issues with the leftovers.

Fortunately, I'm not intending to ever close my trading accounts in my lifetime. These will go to a beneficiary. But if you are intending to do it, you may find yourself having to do a one-time conversion with your broker, including the fees. This is on top of the fee to close your account.

Managing Two "Currency Accounts"

So once you have started to convert some of your funds, you will find that you are often tracking your US funds separately from your CAD funds. This isn't much of an issue really, but it means having more residual funds in both currencies. As I watch various stocks in both the Canadian and US Markets, I realize I to keep double the cash balance in both markets if I want to respond quickly to any purchase opportunities. Because I'm not investing a lot every month, this holds me back from purchase stocks here at the beginning of my investment journey. Eventually, I'll have a stockpile of cash saved up to allow me to respond more quickly.


THESE ARE NOT HUGE DOWNSIDES, but they are areas that I've experienced personally since using Norbit's Gambit. The upside of saving those currency exchange fees absolutely trumps these problems. But they are good to be aware of, nevertheless.


MY POSITIONS FOR TODAY
As of September 21, 2018 closing.


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