# Trying to understand how to convert profit to home currency

I'm looking at example 2 here:

http://fxtrade.oanda.ca/analysis/profit-calculator/how

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!!

• what a confusing calculation, and yeah it is right to convert our JPY losses , we must do a lil math here. that is why i must prefer a simple platform like metatrader4 , who convert automaticly profit to deposit currency Nov 12 '15 at 10:22

## 2 Answers

Ah, it was a dumb question. The 6000 JPY is a loss so I have to buy the JPY back, so I'm selling the USD/JPY and using the bid price.

In this case, they are not considering bid or ask (reading the original webpage). But they are considering the actual FX rate.

They are converting the losses with the ACTUAL rate, that's why they are taking 114.5.

If there is a bid ask spread, and you want to exchange your currency, there is a trick. They will always take the most advantageous rate, so just calculate both, and you will obtain the worse.

• That's what I thought to! And yes, I use your trick all the time - Thus the question. I tested this on fxtrade and when I used EUR_AUD and AUD_USD they use the ask rate versus the bid rate as per my question. Oct 22 '15 at 9:57
• bid when they want to buy, ask when they want to sell the base currency. That's the trick, in any care find the base currency, generally GBP, EUR, USD (in that order), but depends on the couple Oct 22 '15 at 11:14