Yes, Norbert’s Gambit method of currency conversion is legal in Canada. It is not restricted by any registered authorized of Canada.
Norbert’s Gambit: An overview
Norbert’s Gambit is a terminology used to convert US dollars to Canadian dollars or the other way around using online trading platforms such as Questrade, RBC Direct investing etc., Imagine, we convert CAD to USD, then you generally buy DLR on the Toronto Stock Exchange, journal them to New York Stock Exchange, and sell them. The sale proceeds will be in US dollars and will be available in your trading account after settlement of sales. You can buy and sell any share that is listed both on NYSE and TSX. However, DLR which is Horizons US Dollar Currency ETF, is commonly used as this ETF tracks the exchange rate of CAD and USD.
Is Norbert’s Gambit legal?
You can execute Norbert’s Gambit in Registered Investment Accounts such as a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP). These accounts are registered and approved by the federal government of Canada. This is testimony in itself to Norbert’s Gambit.
For instance, the earnings in a tax-Free Savings Account (TFSA) are tax-free. However, the government does not legalise day trading within a TFSA, so the Canadian Revenue Agency penalises accounts that execute day trading within TFSA.
If the government does not deem Norbert’s gambit to be legal, then the Canadian revenue Agency will levy a penalty and additional tax on these accounts for carrying out this method. However, there is no such penalty in Nobert’s Gambit. It is like a general purchase and sale of a financial instrument.
Legitimacy of Norbert’s Gambit
Although Norbert’s Gambit is legal, it is not completely safe or cost-free. You need to pay the transaction cost twice – once when you buy the ETF and once when you sell the ETF. In addition, this technique attracts market risk and currency conversion risk. Market risk is the volatility of shares due to happenings in the economy. Just like a share price, the currency conversion rate also falls and rises based on the happenings in both economies.