A reader, Mr. L, sent the following information on how TD Waterhouse clients can avoid paying currency conversion fees when trading US-listed stocks in a self-directed RRSP account. Here is his detailed e-mail, posted with his permission (and slightly edited):
Since my last email to you, I have discovered that one brokerage house does allow you to avoid all of these costly currency conversions. I was just informed today that TD Waterhouse, which I use, will allow me to convert the Canadian cash held in my RRSP to US funds and buy their US Money Market Fund, currently paying 4.26% interest annually (code: TDB166). When I buy a US stock online using TD Webbroker, I merely have to call one day before the trade settles and ask them to sell enough of that money market fund to cover the trade (as mutual funds only take a day to settle, versus 3 days for equities) and no conversions are made back and forth. When I sell the US stock, I again must call them one day before the trade settles to have them buy an amount of the US Money Market Fund equivalent to the trade proceeds. They call this a ‘wash’ trade.
In this way they say that I can avoid paying any further currency conversions beyond the initial one in order to trade US equities. The only hassle is that even though you are trading online, you still have to phone regarding buying and selling the US Money Market Fund. A small price to pay to avoid all of the extra fees and this hopefully will eventually be changed to allow everything to be done online.
As far as I know, RBC Action Direct, which is our primary brokerage account does not offer this feature. US equities comprise a big portion of our portfolios and the ability to do a wash trade makes switching to TD Waterhouse a tempting option. Thank you for the information, Mr. L!