Norbert's gambit - Can$ to US$ or vice versa

[Norbert Schlenker]

A followup re BMOIL mechanics.

Just a few minutes ago, I managed to

a) buy 1000 RIM @ C$92.74, plus a commission of $9.95, using C$92,749.95
b) then sell (not sell short, because the system knew I was long, believe it or not) 1000 RIMM @ US$92.79, less a commission of $9.95, yielding US$92,780.05

at a time when the spot quote for the C$ was US$1 = C$1.0003.

If a bank were willing to do the FX for me for free, C$92,749.95 would have produced US$92,722.13, less than what I got. The BMOIL website says, if I used their online FX facility, they would turn C$92,749.95 into US$92,196.77.

Thus, I saved about $600 on the conversion.

Then I turned around and reversed the trade, which brought up a mechanical problem. The website would not let me sell the long Canadian position. It knew that I had a flat position and wanted it marked as a short sale. So instead, I

a) buy 1000 RIMM @ US$92.887, plus a commission of $9.95, using US$92,896.95
b) then I sell 1000 RIM @ C$92.93, less a commission of $9.95, generating C$92,920.05

when the spot quote showed US$1 = C$1.0004. If I had used the website's FX conversion function to do this, it would have cost me about $600 yet again.

My account is now flat RIM. I'm not interested in holding RIM and I didn't really want to an FX trade this morning. It's just research.

I did four trades, paid about $40 in commissions, and ended up with US$117 less and C$170 more in my account. It was about 20 minutes work. That's okay by me.

[Katou]

Does this research tell us that it would work...

What would have been the approx. net cost for $100K

Im trying my best to understand all the "mechanics"...sorry if some questions seem redundant!! I will learn... javascript:emoticon(':oops:')
Embarassed

Tks

[AltaRed]

Does this research tell us that it would work...

As I read it, Norbert did the actual trades.

[Norbert Schlenker]

Does this research tell us that it would work...

It worked for me. Twice.

What would have been the approx. net cost for $100K

Net cost to me was negative. I seem to have made $53.

Even if the market had gone against me, I doubt the cost could have exceeded a couple of hundred dollars, which is way below what BMOIL or any bank would charge. (Cue IB aficionados ...)

[active]

So for BMO there is no journal over needed. It works as it should work.

[Norbert Schlenker]

I suspect you would still need to call to get them to make the journal entry if you're doing a real conversion one way.

The holdings screen showed two separate positions after the first set of trades. Maybe they would have netted at day's end, but I don't know.

But the website won't stop you from doing the trade, which is the grief that people seem to run into at other brokers.

[Katou]

To walk myself trought the steps could i try with $500 CND at BMO IL .

Cue IB aficionados ...)

Some type of fine Music..!!

Tks..

[Katou]

Maybe they would have netted at day's end, but I don't know.

What would this mean "Netted"! That BMO IL would have stopped the Trade.

Tks

[Norbert Schlenker]

To walk myself trought the steps could i try with $500 CND at BMO IL .

Before you start out, you have to assume that doing the trades will cost you two commissions ($20, maybe $60 if you're not FiveStar) and a bid ask spread (five cents a share?), so the expected cost is at least $25.

If you want to treat that $25 as tuition, then go right ahead with your $500 trial. If it's a serious attempt to change $500, then you're better off at your local bank branch.

What would this mean "Netted"! That BMO IL would have stopped the Trade.

They would not have stopped the trade. In fact, they did not stop the trade. Netting refers to how the broker shows the position at the end of the day.

After the first set of trades, I was long 1000 RIM bought in Toronto, and short 1000 RIMM sold in New York. In a legal sense, a share of RIM is the same as a share of RIMM. If one "nets" the positions, the long RIM and the short RIMM cancel one another and I have no position at all in the company.

However, the broker's accounting system need not reflect this reality. There could be two positions, one long, one short, and they may stay there until the stock gets transferred (in jargon, "journaled", because it requires a journal entry in the accounting system) from one to cover the other. It has to be done at every other broker and it looks to me like that may still have to be done at BMOIL, even though the online system is now clever enough to net positions in real time so one can trade without human intervention.

[Katou]

I suspect you would still need to call to get them to make the journal entry if you're doing a real conversion one way.

So would i still need to call them once trades are complete!

Merci....

[active]

When you look at the Investorline Holdings page it really shows only one account in which you can "View" the holdings all in CAD or seperate for USD or CAD depending on the currency the share is held in.

The separation (journal over) will still make a difference regarding the margin available in each currency if you hold a position for longer.

[active]

Katou,

the way I understand it you do not need to call if it is an IN/OUT item.

At the end of the day BMO will take the net position considering all trades.

[active]

Katou

Just make sure that your BMOIL account has a US cash side established.

For the timeline question, I can give you good info about the change in exchange rates in the next quarter in about 3 moth from now.

[Katou]

Do any other posters here use or have recently used BMO IL to convert CND to USD.
If so what method did you use!

Thks...

[Followon discussion of when (not how) to convert split off to When to Convert Currency by ModeratorA].

[jeebuz]

A few questions about using a short sale to do Norbert's gambit:

1. I've ran across some material on the web that that implies that shorting a stock is possible in board lots only (i.e. a blocks of 100 shares). Is this true?

If so I see an issue in using short margin accounts to do Norbert's gambit since the amount of currency to be converted may not "fit" nicely into a board lot. Is the solution to pick the stock that comes closest to the amount I want to convert in board lots while still being "liquid" enough?

2. Do brokers take into account the assets in both the $CDN and $US sides on an account to determine the amount of margin available? The margin required to short a stock is 150% so I can see a case where there might not be sufficient margin to short a stock if the total assets in both sides of the account are not considered for margin calculations.

3. It seems to me that it is not possible to transfer/spend the cash in the the "short" account until the short is closed out by journaling the shares from the "long" account to the "short" account. True? Otherwise would the broker not issue a margin call given the naked short in the account (assuming there are no other assets in the margin account)?

Thanks in advance to anyone who replies...

- Jeebuz -

[Norbert Schlenker]

1. I've ran across some material on the web that that implies that shorting a stock is possible in board lots only (i.e. a blocks of 100 shares). Is this true?

Nope. There is a mechanical problem, though, in that any odd lot is special terms and may be hard to get a fill on, especially if you try to do it as a limit order and not at market.

2. Do brokers take into account the assets in both the $CDN and $US sides on an account to determine the amount of margin available? The margin required to short a stock is 150% so I can see a case where there might not be sufficient margin to short a stock if the total assets in both sides of the account are not considered for margin calculations.

Ask your broker beforehand.

3. It seems to me that it is not possible to transfer/spend the cash in the the "short" account until the short is closed out by journaling the shares from the "long" account to the "short" account. True?

True. The trades aren't going to settle for three business days, so you don't have legal title to the money until then. (Until settlement, you do have legal title to whatever you converted out of, but chances are the broker won't let you take that either.)

[jeebuz]

Thanks for the clarifications Norbert!

- Jeebuz -

[Katou]

I thought i would post update.

In the last few days i tried my first conversions from CND to USD using BMOIL. I used RBC shares bought in CND & sold for USD with 2 minute spread.Seems as if i even made a few $$ on the sell side!

Worked fine,and did not have to call them.

Great...and thanks all for the help.....

[Waskasoo]

I tried to do a conversion from $CD to $US today using a method that has worked for me before.

I bought SU in my Canadian account but when I tried to short the shares in my US account the trade was rejected by TDWH.

I got a call from a TD rep who told me that I could not be short and long the same company at the same time. I told him I had done it before and he replied that it shouldn't have been allowed.

Is there any validity to what the rep says?

I suppose I could use the method described upthread where I buy in the Canadian account and phone to ask to sell in the US. I much preferred using the short sell method.

[drejmd]

I tried to do a conversion from $CD to $US today using a method that has worked for me before.

I bought SU in my Canadian account but when I tried to short the shares in my US account the trade was rejected by TDWH.

I got a call from a TD rep who told me that I could not be short and long the same company at the same time. I told him I had done it before and he replied that it shouldn't have been allowed.

Is there any validity to what the rep says?

I suppose I could use the method described upthread where I buy in the Canadian account and phone to ask to sell in the US. I much preferred using the short sell method.

see this

[Waskasoo]

Thank you drejmd.

I see your post of September 8th gives a detailed account of the same problem complete with a solution.

I'll try shorting first next time.

Thanks again.

[Norbert Schlenker]

I tried to do a conversion from $CD to $US today using a method that has worked for me before.

I bought SU in my Canadian account but when I tried to short the shares in my US account the trade was rejected by TDWH.

I got a call from a TD rep who told me that I could not be short and long the same company at the same time. I told him I had done it before and he replied that it shouldn't have been allowed.

Is there any validity to what the rep says?

I suppose I could use the method described upthread where I buy in the Canadian account and phone to ask to sell in the US. I much preferred using the short sell method.

Use TD's position against them. The proper response to "could not be short and long the same company at the same time" is ...

"Well then, you and I agree that I'm long the stock. I want to sell it in the US right now. If your electronic system won't let me do the trade, then do it for me manually and charge me $9.95. While we're on the phone, please arrange to have the shares journalled on settlement date.

Thank you and have a wonderful day."

[drejmd]

then do it for me manually and charge me $9.95.

They have no trouble doing it for you manually/instantaneously.

Good luck with the 9.95. (although I'm such a wimp I didn't even try )

[Bylo Selhi]

Good luck with the 9.95. (although I'm such a wimp I didn't even try )

I haven't done it yet with the $9.95 but in the $29.95 days all I had to do was ask, e.g. "Since it's a limitation of your system that I can't do this online I think you should charge me the online rate." Never had any pushback.

I doubt they want to piss off anyone who qualifies for the $9.95. It's not worth it.

[Waskasoo]

The proper response to "could not be short and long the same company at the same time" is ...
"Well then, you and I agree that I'm long the stock. I want to sell it in the US right now. .... do it for me manually and charge me $9.95. While we're on the phone, please arrange to have the shares journalled on settlement date.
Thank you and have a wonderful day."

That would have been a great response. <seinfeld> I'll probably just call back on Monday and say "Oh yeah, well the jerk-store called..." </seinfeld>

In the end I ended up with a $13 gain day-trading SU and later used RIMM/RIM to convert to $US (shorting first!).