Finance Illustrated

Currency Risk for Canadian Investors: When a US Gain Shrinks in CAD

When you buy US shares with Canadian dollars, two things move: the share price and the exchange rate. Learn to measure both, so a gain on screen doesn't surprise you in CAD.

Topic contributors: Janis Drobisevskis, Axel OreUpdated 17 October 20264 min read

In this article
A reviewed hypothetical example converts USD 100 at 1.30 to CAD 130, then USD 110 at 1.15 to CAD 126.50, before costs.

Why can a US stock gain turn into a loss in Canadian dollars?

When a Canadian buys a US share, two things can change the result in Canadian dollars (CAD). The share price can move in US dollars (USD). And the between USD and CAD can move. A fee for changing your money is a third, separate item.

Your is the one you measure your money in: Canadian dollars, for a Canadian. The chance that exchange-rate moves cut your result in that currency is called .

First, be clear about which way the rate is written. In this lesson, 1.25 CAD per USD means one US dollar costs CAD 1.25. To turn a USD amount into CAD, multiply by that rate.

A good worksheet writes four things beside every amount:

  • the currency the asset trades in
  • the currency you measure your money in
  • which way the rate is written
  • the date and time of the rate

Try it yourself

Move the US dollar

Your US share is up 10%. Now slide "USD against CAD" down to −12% and watch your result in Canadian dollars.

CAD 10,000 buys USD 8,000 at 1.25 CAD per USD. The share rises 10% to USD 8,800. If the rate falls 12% to 1.10, that is CAD 9,680: a 3.2% loss in Canadian dollars. The 10% gain is wiped out once the US dollar falls about 9.1%.

What would you expect?

What this shows: A US stock can rise in US dollars and still lose money in Canadian dollars. A 10% gain is gone once the US dollar falls about 9.1%.

Your CAD result multiplies the two moves: 1.10 × 0.88 = 0.968, a 3.2% loss when the US dollar falls 12%. Adding the percentages would wrongly suggest −2%.

How does a 10% gain become a 3.2% loss?

All numbers here are made up. They are not real rates, forecasts or tax figures.

One made-up holding, measured in both currencies, before costs
StepWorkingResult
You convert CAD 10,000 at 1.2510,000 ÷ 1.25USD 8,000
The share rises 10%8,000 × 1.10USD 8,800
The rate falls 12%, to 1.108,800 × 1.10CAD 9,680
Your result in CAD9,680 − 10,000CAD −320, or −3.2%

In US dollars you made 10%. In Canadian dollars you lost 3.2%. Both answers are true: they answer questions in different currencies.

Notice that you cannot just add the two moves. +10% and −12% would suggest −2%. The real answer multiplies them: 1.10 × 0.88 = 0.968, which is a 3.2% loss.

Here is the rule in words, with no fees or dividends. Divide the new USD value by the old one. Multiply by the new rate divided by the old rate. Then take away 1. For our example: (8,800 ÷ 8,000) × (1.10 ÷ 1.25) − 1 = −0.032, or −3.2%.

Separate hypothetical holding: USD 100 at CAD 1.30 becomes USD 110 at CAD 1.15, so CAD 130 becomes CAD 126.50, down about 2.69%.
A separate hypothetical example uses USD 100 rising to USD 110 and CAD per USD falling from 1.30 to 1.15. CAD 130 becomes CAD 126.50, a 2.69% loss before costs. These are different rates from the 3.2% example above.

What if the share price doesn't move at all?

Keep the holding at USD 8,000 the whole time. At 1.25 it is worth CAD 10,000. If the rate falls to 1.10, it is worth CAD 8,800. You lost 12% in Canadian dollars while the share price stood still.

The opposite can happen too. If the rate rises 12%, to 1.40, the same USD 8,000 becomes CAD 11,200, a 12% gain. Currency moves can help as well as hurt. The point is to measure your exposure, not to guess the next move.

Keeping the money in US dollars after a sale avoids changing it straight away. But it does not stop its value in Canadian dollars from moving.

So check two numbers for each US holding. How did the share do in US dollars? And what is the holding worth in Canadian dollars today?

Where do conversion fees fit in?

Put on their own line. Suppose, for practice, that each conversion costs a separate CAD 100.

  • You pay CAD 10,000 plus CAD 100: CAD 10,100 in total.
  • You sell for CAD 9,680 and pay CAD 100 to convert back: CAD 9,580.
  • Your result: CAD −520, or about −5.1% of what you paid.

These fees are made up, not a real broker's prices. Also check how a fee is charged. If the rate you are quoted already includes a , don't subtract the markup again. Commissions and dividends need their own lines too. Compare real conversion charges with the brokerage fee worksheet.

Does buying a fund in Canadian dollars remove currency risk?

Not by itself. The Investor Office of the Ontario Securities Commission explains that foreign-listed ETFs can be affected by exchange rates and conversion costs. For any fund, ask three separate questions:

  1. In which currency do I buy and sell the fund?
  2. Which investments, and which currencies, does the fund hold?
  3. Does the fund say it its currency exposure, and how?

A fund can trade in CAD and still hold US shares. Paying in CAD does not remove the US dollar exposure inside it. A "hedged" label is not a promise either: read the fund's documents for what it hedges, what that costs and its limits. See how to diversify for country and currency exposure.

What about tax, records and other countries?

Tax depends on your account, such as an RRSP, a TFSA or a non-registered account, and on your situation. This worksheet is not a tax rule. Get Canadian tax guidance before you draw conclusions.

Before you use a real account, ask your broker three things. How does it hold foreign cash? How does it price a conversion? What records does it give you?

The same maths works anywhere. A UK investor in US shares measures results in pounds, and an Australian in Australian dollars. Only the exchange rate changes.

Questions beginners ask

Is currency risk always bad?

No. It works both ways. If the US dollar rises against the Canadian dollar, your US shares are worth more in CAD. The aim is to measure the effect, not to predict it.

Should I keep US dollars in my account?

Holding US dollars can save you from converting back and forth on every trade, which can save fees. But the CAD value of those US dollars still moves with the exchange rate.

Does a currency-hedged ETF remove all currency risk?

It aims to reduce it, but hedging has costs and limits. Read the fund's documents to see what it hedges, how and at what cost.

Does this only apply to Canadians?

No. Anyone who invests in another currency faces it. A UK investor in US shares measures results in pounds, and an Australian in Australian dollars.

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