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Norbert's gambit allows you to trade US dollars for Canadian dollars with a tiny spread. It is implemented using cross-listed ETFs like TSE:DLR and TSE:DLR.U, which are traded in different currencies, but which can be swapped for each other for free.

Many ETFs have underlying securities, but these don't. What do you own when you buy one of these ETFs? How does Horizons benefit from running these ETFs? How is the spread between these ETFs controlled by market forces?

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Many ETFs have underlying securities, but these don't. What do you own when you buy one of these ETFs?

Each ETF can be operated slightly differently, but generally they'll invest some large percentage of the cash (say 80%) in an index fund, and the rest will be used to buy options, swap agreements (or futures contracts in the case of commodity ETFs).

How does Horizons benefit from running these ETFs?

They collect management fees.

How is the spread between these ETFs controlled by market forces?

People buy and sell them in arbitrage moves if they stray too far from the currency markets.

  • By too far he means more than $0.00 above the transaction cost. – Joe Jun 9 '17 at 19:51
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Many ETFs have underlying securities, but these don't. What do you own when you buy one of these ETFs?

They have $. Literally $ (well, digital $). Just like a Gold ETF has gold, I believe these have $.

How does Horizons benefit from running these ETFs?

There is a MER they charge like many other ETFs.

How is the spread between these ETFs controlled by market forces?

I assume you mean the spread of the two ETFS in relation to eachother. Simply put, if they won't in-sync, they would become in-sync. It is like any other vehicle: if the price becomes misaligned, it corrects itself through market forces. (ex. If 1 CAD could be converted to 2 USD through it, the price of the ETF would make it rise to match 0.74 USD to 1 CAD.)

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