I'm looking at example 2 here:
You see that the rate for USD/JPY is 115.00/05 and decide to buy 10,000 USD. Your trade is executed at 115.05. 10,000 USD*115.05= 1,150,500 JPY You bought 10,000 USD and sold 1,150,500 JPY. The market rate of USD/JPY falls to 114.45/50. You decide to sell back 10,000 USD at 114.45. 10,000 USD*114.45=1,144,500 JPY You bought 10,000 USD for 1,150,500 JPY and sold 10,000 USD back for 1,144,500 JPY. The difference is your loss and is calculated as follows: 1,150,500-1,144,500= 6,000 JPY. Note that your loss is in JPY and must be converted back to dollars. To calculate this amount in USD: 6,000 JPY/ 114.45 = $52.42 USD or 6,000 *1/114.45=$52.42
For the 6000 JPY loss we are dividing by the market bid, correct? What I don't quite understand is why it's not the ask. I verified this is how it works in fxtrade, but I just don't quite understand why. Aren't you trying to buy back USD and sell JPY? To do that, don't you need to use the market sale/ask price of USD/JPY?
Also, I tried this with a different type of pair, like EUR_AUD and AUD_USD. Let's say I end up with a profit of 1000 AUD. There, I divide by 1 / (ask price of the AUD_USD) .. Correct? I'm not sure I understand why this one is different, ie, why it's the market ASK now and not the BID price for AUD_USD
Does anyone have an explanation or links that might explain this further? Thanks!!