Converting CAD to USD using the DLR ETF

If you’re converting a large amount of CAD to USD (to buy US-listed/denominated securities, or to purchase US goods, or whatever) the spreads your bank offers you may not be the best way. Instead, if you have a brokerage account (one for both CAD and USD), you can use the Horizons DLR ETF to do the conversion for a lower cost.

Horizons has a nice PDF detailing the procedure, but I wanted to go through my experience with the process.


The basic idea builds on Norbert’s Gambit, which does a CAD-USD conversion by doing a quick round-trip (buy, then sell) of a liquid interlisted stock like one of the Big Five banks, i.e. TD, RY, BMO, CM or BNS. The theory is that arbitragers will keep the ratio of the CAD and USD price in line with the current USD-CAD spot rate; the hope is that if there was a huge discrepancy arbitragers would step in to eliminate or close it substantially. (This is a sort of an efficient-markets effect)

However, the procedure is not fool-proof, as there’s the inherent market risk of holding onto the position, even for a short time. If the markets are volatile, the position could move against you, eliminating any savings from doing the conversion this way.

DLR to the rescue

To mitigate the market risk, Horizons introduced the DLR/DLR.U ETF. (The first is denominated in CAD and the second in USD; both trade on the TSX, which does allow trading of US-denominated equities)

DLR is specifically designed [1] to track the current USD-CAD spot rate at 10x the current rate. So, for example, if the current spot bid/ask is 1.26752/1.26790, the bid/ask of DLR might be around 12.66/12.68 or so. DLR.U, being denominated in USD, is mostly static. The bid/ask might vary from 9.98/9.99 to 9.99/10.01.

Thus, the process to convert from CAD to USD is basically this:

  1. Buy DLR in your CAD account.
  2. Wait for the trade to settle, then call your broker to transfer/journal the shares over to your USD account. This will allow you to sell them as DLR.U.
  3. Sell the DLR.U shares.
  4. You’ll now have USD in your USD account, to buy US securities with, or to withdraw/transfer to another account, or for whatever reason.

Because the market price is tied to the current spot price, there is no market risk when converting from CAD to USD; as soon as you’ve bought DLR, you’ve effectively converted over to USD at the rate/price at the time of your purchase. (It’s not the same when going from USD to CAD, however. [2])

My Experience

I decided to buy DLR on Tuesday, March 24th, 2015. At that time, the best rate I could see doing a “standard” conversion was about 1.271 from one of the Big Five banks. Conversely, DLR was trading with the ask at 12.49, representing a rate of 1.249:


I put in a limit order @12.49 and was filled immediately. I initially called up my broker (TD Waterhouse) and attempted to transfer the shares over to my USD account, but was told I had to wait for the trade to settle, which would be on Friday.

On Friday, March 27th, I again called up my broker and this time, was able to transfer the DLR shares over to my USD account. I was told the transfer might take one business day, so unfortunately I had to wait until Monday to sell the DLR.U shares. (Generally, you’ll want to avoid this as you’ll have to pay extra management fees – the management fee on DLR is 45 bps annualized, so holding the ETF an extra two days won’t result in that much of a difference, but still)

On Monday, March 30th, the bid on DLR.U was 9.98 and so I put in a limit sell at this price, which was filled immediately:


After that, the USD cash was in my account. The total cost of this transaction was essentially two trade commissions (one at $9.99 CAD and one at $9.99 USD) plus the bid-ask spread on DLR/DLR.U. Clearly, there is an amount above which converting using this method is superior to using a bank’s quoted rates, and below which the bank’s rates are better.

For example, for a hypothetical conversion of ~$20,000 CAD:

Purchase Amount: 
1600 DLR * $12.49 CAD = $19,984 CAD
$19,984 CAD + $9.99 CAD (commission) = $19,993.99

1600 DLR * $9.98 USD - $9.99 USD (commission) = $15,958.01 USD

This is an implied conversion rate of 1.2529; compared with the quoted rate of 1.271, this would have saved $227.10 USD from the conversion of the initial amount of $19,993.99 CAD. (In this case the break-even point is around $1500 CAD; around or below this amount and it’s better to convert at the quoted rate of 1.271, and much higher than this it’s better to use DLR)

Summary notes

  • This method is only worth the effort for converting over large (>$5,000-$10,000 CAD) amounts of money. You should calculate the break-even point.
  • I don’t know how well this works with really large sums of money, i.e. if there’s enough liquidity/depth-of-market to support such transactions. If you have a lot of money, you’re probably better off directly transacting in the FX markets anyways. (This method is likely only good for “Goldilocks” amounts – not too big, not too small)
  • This takes time – at least three days for the trade to settle plus maybe another to transfer from your CAD to USD brokerage account.
  • Because of the time taken to settle+transfer, I’d try to do the trade on a Monday so you can close it out before the end of the week and avoid holding over the weekend. That will save you a very, very small amount in management fees from holding the ETF an extra two days.
  • I’d avoid doing this on volatile days in the market. For example, avoid BoC rate announcement dates, as not only may the price be moving fast but the bid/ask spreads will likely be wider.


  1. Reading their prospectus, it appears they do this simply “by investing primarily in cash and Cash Equivalents that are denominated in the U.S. dollar.” There’s also this statement that “Horizons DLR is a money market fund within the definition set out in National Instrument 81-102”, so it appears to be more-or-less a money market fund that holds US-denominated instruments.
  2. It’s not the same when going from USD to CAD because you’d be buying DLR.U, waiting for the trade to settle, transferring over to your CAD account and then disposing of DLR shares. During that time, the price of DLR could have fluctuated.

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