.png)
In the world of international investing, currency exchange fees can significantly eat into profits. Enter Norbert's Gambit, a clever strategy that allows investors to convert currencies at near-market rates, bypassing the hefty fees typically charged by banks and brokers.
What is Norbert's Gambit?
Named after its inventor, Canadian investor Norbert Schlenker, this technique exploits the dual listing of certain stocks or ETFs on both Canadian and U.S. exchanges. The process involves buying a security in one currency and selling it in another, effectively converting money without directly using a currency exchange service[1][2].
How It Works
The basic steps of Norbert's Gambit are:
1. Buy shares of a dual-listed stock or ETF in the source currency.
2. Ask your brokerage to "journal" or transfer these shares to the exchange that trades in the target currency.
3. Sell the shares in the target currency[5].
For example, an investor might buy shares of Royal Bank of Canada (RY) on the Toronto Stock Exchange in Canadian dollars, then sell them on the New York Stock Exchange in U.S. dollars[1].
The Cost Advantage
The primary benefit of Norbert's Gambit is cost savings, especially for larger transactions. While traditional currency exchange methods often incur fees of 1-2.5% or more, Norbert's Gambit typically costs only the trading commissions plus a small bid-ask spread[1][3].
Consider this comparison for exchanging CAD 10,000:
Method | Cost |
Traditional Exchange | ~CAD 148.50 (1.49%) |
Norbert's Gambit | ~CAD 25.13 (0.25%) |
As the amount increases, the savings become more substantial. For a CAD 100,000 exchange, traditional methods might cost CAD 841.08 (0.84%), while Norbert's Gambit would only cost about CAD 38.54 (0.04%)[3].
Considerations for International Investors
While Norbert's Gambit originated in Canada, the principle can be applied to other currency pairs, provided there are suitable dual-listed securities[5]. However, investors should be aware of several factors:
1. Time: The process can take several days to complete, unlike instant traditional exchanges[7].
2. Brokerage Support: Not all brokerages support this technique, and some may require specific account types[2].
3. Market Risk: There's a brief period where the investor is exposed to market fluctuations, which could affect the final exchange rate[5].
4. Transaction Size: The strategy is most beneficial for larger amounts, typically over $5,000, due to fixed trading costs[3].
Conclusion
Norbert's Gambit represents a powerful tool for cost-conscious investors dealing with currency conversions. While it requires some effort and carries certain risks, the potential savings make it an attractive option for those exchanging significant sums. As with any financial strategy, it's crucial to understand the process thoroughly and consider your specific circumstances before implementation[2][5].
For international investors, exploring similar techniques with securities listed on multiple global exchanges could yield comparable benefits, potentially revolutionizing how they manage currency conversions in their portfolios.
Citations:
Comments