Norbert's Gambit Calculator

• Norbert's Gambit is a technique used by many Canadian investors to cheaply exchange between CAD / USD.
• It involves purchasing a dual-listed security, journaling it, and then selling it in order to receive the proceeds in the desired currency.
• It is almost exclusively done using the DLR.TO / DLR.U.TO pair of ETFs, which are pegged to the US Dollar.
• I built this tool to expand upon existing tools, but with a greater variety of features.
Features
• Bid / ask spreads: This tool accounts for the live bid / ask spread on both DLR.TO and DLR.U.TO. Most existing tools don't account for this, and only pull a single quoted price. Not only is it important to know the exact prices at which you will trade for the sake of accuracy, but also because it is likely that potential ECN fees will be codependent on whether you choose to transact at the bid or ask.
• FX rates: Most tools only pull the current FX rate, and use it to calculate trading costs throughout the entire pair of trades. I have implemented the ability to specify an FX rate on both the date of purchase and the date of sale. The benefits of this are twofold. First, inbetween the purchase and sale date, the investor may experience a meaningful amount of drift in currency prices. If this is not accounted for, the trading costs will not be accurate. Second, the integrity of the data of past trades will not be skewed based off the interest rate drift from the time the trades occured to the time the calculation is being ran.
• Implicit costs: Most tools will only account for explicit trading costs, defined as the sum of the ECN fees and commissions. In addition to explicit costs, this tool also accounts for implicit trading costs. These consist of both the bid / ask spreads that could be either payed or earned based on the investors liquidity preferences, and the profit / loss realized from FX rate drift while the trades are settling and the shares are journaling.
NOTES
• The included FX lookup tool fetches data directly from the BoC. If this field is left blank, data from the most recent business day will be used. This is recommended if you are calculating costs for a future trade. Please refer to their website or their API for any further information.
• At any time when a currency conversion needs to be calculated, the FX rate effective on the day of transaction will be used.

This information is provided for Canadian tax filing purposes, and conforms to standards outlined by the Canada Revenue Agency. All figures are quoted in CAD. For further information on how capital gains / losses are treated under Canadian tax code, please refer to T4037(E).

• Proceeds are defined as the amount of money received for selling capital property. If this is in foreign currency terms, it is converted to CAD using the FX rate on the sale date.
• ACB (Adjusted Cost Base) is defined as the cost of capital property, plus any expenses to acquire it. If this is in foreign currency terms, it is converted to CAD using the FX rate on the purchase date.
• Outlays and expenses are the amounts that are incurred to sell capital property. They are deducted from the proceeds of disposition when calculating your capital gain or loss. If this is in foreign currency terms, it is converted to CAD using the FX rate on the sale date.
• Capital Gain / Loss is calculated by subtracting the ACB, and any outlays and expenses incurred to sell capital property, from the proceeds of disposition. If the resulting figure is positive, it is a capital gain. If the figure is negative, it is a capital loss.

When comparing the results of this calculator to other records, such as those from other calculators or those self kept, there may be discrepancies that arise due to differences in methodology.

• Direct FX Quotes: This calculator uses direct currency quotes (price of one unit of foreign currency is expressed in terms of the domestic currency). This is in contract to indirect currency quotes (price of one unit of domestic currency is expressed in terms of foreign currency). If another calculation is done using an indirect quote, there will be a discrepancies in end results. This is because currencies are quoted in terms of 4 decimal places, yet the reciprocal is needed to accurately convert between them. For example, if 1 USD = 1.3565, for no information to be lost, 1 CAD would need to be calculated as (1 / 1.3565) = 0.737191301..., however, it is likely the indirect quote was given as 0.7372. While both methods are valid, the direct approach is preferred, as it is the official rate that the Bank of Canada publishes.
• Rounding: There may be cases when rounding methodologies differ between this calculator and other calculators or brokerages. For example, in this calculator, principal amounts are not rounded to the nearest cent, whereas ECN fees and commissions are.
• ECN Fees: It is important to note how ECN fees are handled, as misconceptions could lead to incorrect results. The 'incur ECN' checkboxes are intended to specify wheather or not ECN fees will be levied on the full quantity of the trade (round lots and odd lots). If left unchecked, ECN fees will still be levied against odd lots. For cases where you wish to have no ECN fees levied at all, the ECN parameters within the fee schedule should be adjusted to 0.

For any further questions regarding methodology, or to request new features, please contact me at daniel.boctor@ontariotechu.net.