Published 2018-07-09

Near perfect currency exchange

Here's a trick the banksters don't want you to know — how to get currency exchanged without their sticky fingers being involved!

Normally, if you convert some amount of say Canadian dollars into US dollars, they'll help themselves to around 2-3% of the total amount as a "fee" for some kind of alleged "service."

Recently, I started working for a US company and get paid monthly in US dollars. I didn't want to lose 2-3% of my income to the banks. So, I recalled a trick that a coworker of mine shared some years back.

1. get yourself a US dollar account; the money from your US work gets direct-deposited there
2. get yourself a brokerage account, that allows you to trade on both Canadian and US exchanges.
3. transfer your US money into the brokerage account, and buy something that trades on both exchanges (e.g., a nice stable bank stock, like CIBC).
4. call the brokerage and have them "journal over" the shares you just bought from the US side to the Canadian side.
5. sell the shares on the Canadian side.

Voila!

Let's see how this works with something like US$10k.

I get US$10,000 wired into my US dollar account. I find a stock, like CIBC, that trades on both the NYSE and the TSX. Today for example it's trading at US$88.30 and CA$115.80 (doing the math, that implies an exchange rate of 115.80/88.30 = 1.3114, which is exactly what Yahoo finance shows as the current exchange rate).

Over my lunch break, I buy 110 shares for US$88.30 x 110 = US$9,713.00 + commission.

I journal the shares over to the Canadian side (one 5 minute phone call, and it's free). A few minutes later, the shares are on the Canadian side.

A few minutes later, before CIBC has a chance to change much (remember, it's a boring, stable bank), I sell 110 shares for CA$115.80 x 110 = CA$12,738.00 - commission.

Total operation time: less than 10 minutes.

I use CIBC's "Investor's Edge", and they charge me $6.95 commission (USD or CAD, depending on which side I'm doing the trades on).

So, the total exchange accounting looks like this:

US$9713.00+US$6.95 = US$9719.95 converted into CA$12738.00-CA$6.95 = CA$12,731.05

This is an effective exchange rate of 12731.05/9719.95 = 1.3098

Compared to the quoted rate of 1.3114, this represents a 0.122% loss on the exchange (as compared to a 2-3% loss).

That's right — 16 to 25 times cheaper than the banks!

Drawbacks:

• you need to convert at least around the $1,000 mark to beat the 2-3% fee (we're assuming your commissions work out to around CA$16 on both sides, so 2% of X = $16 means X is $800, and 3% of X = $16 means X is $533).
• You need to have a US account, and a US margin account
• You need competitive brokerage commissions (most discount brokers these days are in the sub $10 range).
• This doesn't convert 100% of your money — you can't buy fractional numbers of shares :-)

But, if this is something that you do regularly, you could save thousands of dollars per year.

Details

Yes, it's perfectly legal.

Here are all the fees I incur:

1. US dollar bank account at CIBC costs US$6.95 per month
2. US dollar electronic transfer costs US$15
3. Buy side commission is US$6.95
4. Sell side commission is CA$6.95

So, if you're doing this once per month, you're basically looking at a fixed cost of US$28.90 and CA$6.95 per month (let's call it CA$44.50/month).

Just sayin. :-)