Just want to share my experience doing Norbit's Gambit, for anyone that may want to learn on my experience, or tell me all the ways in which I am wrong.
I've posted a question
earlier, asking how to make sure the market didn't swing in the wrong direction. And yes, I understand it's called a "gambit" for a reason. === TL;DR ===
- Wanted to save $65 on currency conversion while buying CAD $3,500 worth of US stock - Overestimated forex fee, underestimated NG cost - Murphy happened... - Lost potential gains of CAD $185.80 while waiting - Is the gambit ever worth it? === The goal ===
- On August 25th, use about CAD $3,500 to buy some US Netflix (NFLX) shares === The method ===
- Buy DLR in CAD - Call brokerage to journal over to US side - Sell DLR.U in USD - Buy NFLX with USD
In a lot of my research, I've been told the "fee" when going through the brokerage (Questrade in my case) is 2%. That's not too accurate. === The brokerage Forex rate/fee ===
So I assumed 2% of $3,500 would be $70.
However it's really an addition of 199 basis points to the exchange rate. I believe they use the closing exchange rate on the date of the transaction.
So if the exchange was 1.2500, it's 1.2699, and $CAD 1000 nets $USD 787.46 ($USD 12.54 short of ideal $USD 800). If we convert 12.54 to CAD, it's $CAD 15.68 or 1.568% on the original $CAD 1000.
But if the exchange is 1.2200, it's 1.2399, and $CAD 1000 nets $USD 806.51 ($USD 13.16 short of ideal $USD 819.67). If we convert 13.16 to CAD, it's $CAD 16.06 of 1.606% of the original $CAD 1000
The "conversion fee" is dependent on the exchange rate, but I can't figure out a quick direct way to calculate what the "fee" would be in source
currency %. The closest guesstimate is to divide the basis points by the current exchange rate, as below:
- In first example, 0.0199 / 1.25 = 0.0159 or 1.59%
- In second example, 0.0199 / 1.22 = 0.0163 or 1.63%
On August 25th, the exchange rate
was 1.2483. So the above guesstimate for the Forex "fee" would be $55.80. Or more accurately $54.91
, close enough. Still, that's 21.5% lower than the broad *
$70** estimate earlier.* === The NG effective fee ===
Here once again, the common consensus is that the NG's fee is just a cost of buying and selling an ETF. So, with QT's free ETF purchases, the guesstimate is just about $5 for the selling commission.
When I bought DLR ETF on August 25th, I got it for CAD $12.42 per share (that's not the day's close price, but what I actually paid). the US side of DLR.U is always US $9.93. The gives the DLR Exchange Rate
of 1.2508... already different from the ideal 1.2483 (I suppose that's how the ETF makes money)
- CAD $3,502.44 buys 282 whole shares of DLR (I will address the extra $2.44 later)
- No buying comm, but ECN of CAD $0.0035 * 282 = $0.99
- Selling comm and ECN: US $0.99 + $4.95 = $5.94
So, it would appear the cost/fee of NG is just CAD $0.99 + US $5.94 (CAD $8.40)... but not quite. Let's look as the actual US dollar amounts. Since we can only buy whole shares of DLR + ECN fee, from this point I am converting CAD $3,502.44 + $0.99 = $3,503.43
- Ideally, with exchange of 1.2483, CAD $3,503.43 nets US $2,806.56
- I paid CAD $3,503.43 to buy 282 DLR shares
- I sold DLR @9.93 for US $2,800.26
- Less US $5.94 comm+ENC leaves me with actual cash of US $2,794.32
The difference between the ideal US $amount and what I am left with is the "fee" for doing NG. US $12.24, or CAD $15.28. This sets the NG's Effective Exchange Rate as 1.2538 or a "NG's fee" of 0.44%
. Please note that this rate/fee is *
based on the converted amount*: the more you convert, the less/cheaper it is.
So comparing the actual cost of NG vs QT's auto conversion and the guesstimates is quite different - Actual $15.28 vs $54.91 ($39.63 spread) - Guesstimate $5 vs $70 ($65 spread) === The Time factor ===
Now that I have US $2,794.32, let's buy some NFLX. The date now is Sept 5th
(yes, the NG completed earlier, but I am human... also QT didn't call me when the journaling was completed so I got sidetracked).
Before doing the NG, I calculated that NFLX dropped about 2.02% in 10 days. It could also go up by same amount. That 2.02% rise on CAD $3,500 value would be a gain of $70.7... comparable to $65 guesstimate loss of doing currency auto-conversion through QT (QTAC). So in my analysis, at worth case it would be a wash, in best case I save some money on NG. ... We already know now that the actual cost of QTAC is much less ....
This was the end result of my NG: spent CAD $3,503.43 and 11 days later I have a US stock+cash Portfolio of value US $2,789.37 But considering the increase in NFLX stock over those 11 days, what if I would have just went with Questrade's Auto-conversion (QTAC) route?
- On September 5th, NFLX traded (at time of my purchase) at $178.79
- That's a 6.74% increase of August 25th's price of $167.50 (at the time of me recording the price)
- US $2,794.32 buys 15 whole shares for $2,681.85 + $4.95 Comm = US $2,686.80 spent. [Weirdly enough I had no US ECN fees in spite of doing odd lot market orders]
- This leaves US $107.52 in cash
- Total US Portfolio value (cash + NFLX value) $107.52 + $2,681.85 = $2,789.37
- QTAC exchange rate on August 25th, 1.2483 + 0.0199 = 1.2682
- CAD $3,503.43 will net US $2,762.52
- That would buy 16 whole NFLX shares @167.50 for US $2,680 + $4.95 comm
- Total spent US $2,684.95 and left with $77.57 cash
- Cash + NFLX Portfolio value US $2,757.57
In 11 days, the value of NFLX is @178.79 - Current value of 16 NFLX shares = US $2,860.64 - Plus cash US $77.57 for a Total Portfolio Value of US $2,938.21 If, on August 25th, I would have auto converted currency with QT and bought NFLX, I would have a portfolio value of US $2,938.21 on September 5th. Instead, starting the Norbit's Gambit on August 25th, I bought NFLX on Sept 5th and have a portfolio value of US $2,789.37 Instead of saving a guesstimate of CAD $65, I have lost potential gains of US $148.84 or CAD $185.80 === Murphy... or Loonie... whatever ===
In all of above, I tried to keep the currency fluctuations isolated. So apart from initial conversion on August 25th, all my future (September 5th) portfolio values were in USD. But as Murphy would have it, the BoC rate announcement made the loonie stronger in between my NG.
- On September 5th, the ideal exchange rate jumped to 1.2235
- DLDLR.U had a somewhat delayed reaction, and was almost same at 1.2236
Based on above, doing QT auto-conversion - On August 25th, nets US $2,762.52 - On September 5th, nets US $2,817.62 I would have got US $55.10 more just by doing the QTAC later.
If I would have bought NFLX on September 5th after doing QTAC - 15 whole shares @178.79 + $4.95 comm leaves me with US $130.82 in cash - Total NFLX + Cash portfolio value of US $2,812.67 That's still US $23.30 more than doing the NG, although still less than just buying NFLX outright on August 25th and letting it grow. === Final conclusion ===
Smaller amount (CAD $3,500) for NG for a stock purchase that could/did swing 6% was not worth it. Loonie getting stronger also made the whole exercise fruitless, but even eliminating the currency fluctuation, the growth of the stock outperformed the savings of NG.
Playing with my numbers, assuming the currency fluctuation is fixed, for CAD $3,500, doing Norbit's Gambit vs Questrade's Auto-Conversion is breaking even when the stock appreciation is no more than 1.18% during the time it takes to complete NG (11 days in my case). Even if you are more punctual and can complete it in 5 days, you still need to make sure the stock doesn't appreciate more than 1.18% in 5 days.
By comparison, if converting CAD $10,000, it's break even if stock rises 1.27% during that time. When doing CAD $50,000 then 1.31%
Hmm.... so even at high amounts of CAD $50,000 the tolerance to stock fluctuation is pretty low. So is it worth it?
- Overestimated the Forex fee
- Underestimated how much NFLX could swing
- Got distracted to do it in more timely manner
- Also ... loonie...
For anyone that cares, here is public Google Sheets docs to verify my math (File -> Make a copy, in order to edit values) https://docs.google.com/spreadsheets/d/12nH8Q_0cKFtFTW_yomASHtpLXN6oYuTgkXeTNAMkQGY/edit?usp=sharing
Free online resources for Forex Trading - from novice to expert, currency traders of all levels will discover a wealth of free online resources, from quotes and charts to fx news and commentary, and much more. Go over the basics of our web trading charts. FOREX.com is a registered FCM and RFED with the CFTC and member of the National Futures Association (NFA # 0339826). Free trading charts for forex, major commodities and indices. Our charts are fully interactive with a full suite of technical indicators. Kostenlose Trading-Charts für den Devisenmarkt, die wichtigsten Rohstoffe und Indizes. Unsere Charts sind interaktiv und enthalten technische Indikatoren. Interactive financial charts for analysis and generating trading ideas on TradingView! Sonstige Informationen. Titel: Currency Rates - USD to PKR - FOREX.pk Beschreibung: Forex.pk offers real time forex rates, archives, graphs, charts, news.Find Pak Rupee foreign exchange rate in US dollars and convert PKR to USD, GBP, Euro. Get Pakistan open market, inter bank for forex trading. Comprehensive and easy-to-use live forex chart that tracks the movements of thousands of currency pairs in the global Forex market. TradingCharts. The source for free market quotes, charts and news - - over 30,000 commodity futures quotes, stock market price and forex rates and charts following North American and international forex currencies, futures contracts and stocks.. Price Charts. TradingCharts charts thousands of price charts daily, following nearly every stock & commodity market, and every major and minor forex ... Use our free and live Forex and CFD charts to plan your trades. Figure out where to enter, place your stop-loss, and take profit orders. FOREX TradingCharts.com: HOME CHARTS & QUOTES FOREX NEWS FOREX QUOTES LEARN FOREX FOREX BROKER LIST BOOKMARK FEEDBACK. FOLLOW US. Forex Charts from Independent Data Feed. Trade now with: This forex chart for Euro / US Dollar (EURUSD) is updated continuously during market hours. The EURUSD currency charts are available in bar chart and candlestick chart formats to help highlight price trends ...
5 of the Best Free Charting Websites. http://www.financial-spread-betting.com/course/technical-analysis.html PLEASE LIKE AND SHARE THIS VIDEO SO WE CAN DO MO... Get a walkthrough of the FOREX.com web trading platform powered by TradingView The 7 Best Stock Chart Patterns -- and 1 Bad One // Want more help from David Moadel? Contact me at davidmoadel @ gmail . com // Article "The 7 Best Price Ac... This video shows how simple it is to analyse a Forex chart, with a USDJPY example we execute a top down analysis using strictly tools and price action. This ... Discover how to place trades and orders directly from the charts as well as the other i box options. Placing contingent orders may not necessarily limit your... Everyone analyzes FOREX charts differently. In this video, I reveal the simple and straightforward way that I have been analyzing charts lately which has wor... Practice these concepts with a free practice charting and trading account here: http://bit.ly/forex-demo1 For the full lesson with images, text, links, and d... See Page Here: https://bit.ly/3kjIXra - What is Forex (learn forex online) - FOREX TradingCharts.com Fundamentals Explained Forex trading in the spot market ... Try These Out: https://bit.ly/2XtnPVB - Not known Details About What is Forex (learn forex online) - FOREX TradingCharts.com importer would have to exchange ... For people new to trading Forex they may have stared at Forex charts for a while but not actually understood what the various things on the chart actually me...