MATHEMATICAL RELATIONSHIPS OF FOREX MARKETS MATHEMATICAL RELATIONSHIPS OF FX PAIRS ARE TRIANGULAR IN NATURE all forex pairs are subjected to this reality and the entire fx marketplace is a tapestry of multiple threads but if you pull on one the effects become repercussions which affect countless other fx pairs in higher or lesser degree explanations and calculations to follow: 3 markets chosen at random: A))) called eur/jpy B))) called eur/usd C))) called usd/jpy ...

prices of the 3 above markets in 3 different time periods period 1. last Monday at 12:00 am NY time period 2. last Wednesday at 5 am NY time period 3. last Friday at 10.50 am NY time here are the prices (average of bid and ask) of each market: A))) called eur/jpy period 1. 116.75 period 2. 117.10 period 3. 116.65 B))) called eur/usd period 1. 1.1065 period 2. 1.1000 period 3. 1.0935 C))) called usd/jpy period 1. 105.55 period 2. 106.45 period 3. 106.65 … 1. for the first snapshot of last Monday at midnight NY time… if we calculate the price of eur/jpy @ 116.75 divided by eur/usd @ 1.1065 we obtain the value of usd/jpy 105.55 A / B = C and then, eur/usd @ 1.1065 multiplied by usd/jpy @ 105.55 equals eur/jpy @ 116.75 B X C = A and eur/jpy @116.75 divided by usd/jpy @ 105.55 equals eur/usd @ 1.1065 A / C = B … A (eur/jpy) is the result of B X C B (eur/usd) is the result of A / C C (usd/jpy) is the result of A X B …

each individual market mentioned here cannot move and NOT affect the other 2 markets and this relationship is reciprocal among all related markets, meaning that not only do we have a triangular relationship between eur/jpy and eur/usd and usd/jpy we also have triangular relationships between countless others such as in the trio consisting of aud/jpy and nzd/jpy and aud/nzd and aud/usd and nzd/usd and aud/nzd and eur/aud and eur/nzd and aud/nzd etc. ad infinitum (well, almost) ;) the point is, whatever fx market you take a position in, is definitely not an isolated market each fx pair reflects 2 currencies as the market price is the ratio between one currency versus the other (ex: eur versus usd) … I calculated the relationships between the 3 instruments in the first example above, in the beginning of the post you can easily do the same calculation at the other 2 times mentioned in my example the mathematical relationship will ALWAYS exist and is a constant in the case of those 3 markets this principle is ignored in forex trading simply because it is unknown, as it never appears in popular books whose subject is forex trading and yet, this is the foundation of the entire forex marketplace to ignore this is not only foolish to act and take a trade in any forex pair unaware of its existence can lead to unexpected surprises as the correlation factor between related GROUPS is very high we can easily find the correlation factor between 2 fx pairs and they are rated from highest to lowest but we never read anywhere that forex pairs do not work in groups of 2 but are instead mathematically related in groups of 3 eur/jpy coupled with eur/usd results in usd/jpy or, said differently, eur/usd coupled with usd/jpy results in eur/jpy

*** and yet, whoever takes a trade in usd/jpy will never ever realize that what takes place in the eur/usd market is affecting his/her position at each and every second! *** this applies to the entire fx market, 24 hours a day, 365 days per year, non-stop, across the entire forex world for the other 2 time periods, here are the calculations: 2. last Wednesday at 5 am NY time A / B = C 117.10 / 1.1000 = 106.45 B X C = A 1.1000 X 106.45 = 117.10 A / C = B 117.10 / 106.45 = 1.1000 … 3. last Friday at 10.50 am NY time A / B = C 116.65 / 1.0935 = 106.65 B X C = A 1.0935 X 106.65 = 116.65 A / C = B 116.65 / 106.65 = 1.0935 Francois Normandeau