What is a Forex Pip? A Simple Guide for Traders in 2025

At Mr ICT Trader, we aim to simplify Forex trading concepts for beginners and advanced traders alike. One of the most fundamental terms you’ll encounter in Forex trading is a pip. Understanding what a pip is, how it works, and its role in your trading strategy is crucial for success in the Forex market, especially in 2025 with volatile events like the Texas Strategic Bitcoin Reserve bill impacting related markets. Let’s break it down in this easy-to-follow guide.

What is a Forex Pip?

A pip, short for “percentage in point” or “price interest point,” is the smallest unit of price movement in a Forex currency pair. It represents the change in value between two currencies and is typically measured as the fourth decimal place in most currency pairs. For example, if the EUR/USD pair moves from 1.1050 to 1.1051, that 0.0001 change is equal to 1 pip.

• Standard Definition: For most currency pairs, 1 pip equals 0.0001. However, for pairs involving the Japanese Yen (e.g., USD/JPY), a pip is measured at the second decimal place (0.01).
• Why It Matters: Pips are used to calculate profits, losses, and risk in Forex trading, making them a key metric for traders.

How Pips Work in Forex Trading

Let’s explore how pips function in real trading scenarios:

• Calculating Price Movement: If GBP/USD rises from 1.2650 to 1.2670, the pair has moved 20 pips (1.2670 – 1.2650 = 0.0020). This movement helps traders measure market shifts.
• Profit and Loss: The value of a pip depends on your trade size (lot). For a standard lot (100,000 units), 1 pip in EUR/USD equals $10. So, a 20-pip gain on a standard lot would yield a $200 profit (20 pips x $10).
• Yen-Based Pairs: For USD/JPY at 149.50 moving to 149.60, the 10-pip movement (0.10) on a standard lot is worth ¥1,000 per pip, or ¥10,000 total, which converts to roughly $67 at current exchange rates.

Why Pips Are Important for Forex Traders

Pips play a critical role in Forex trading, especially when using strategies like ICT’s MMXM model on Mr ICT Trader:

• Risk Management: Knowing pip values helps set stop-losses and take-profits. For example, risking 20 pips on NZD/USD (currently at 0.6150 after the RBNZ’s OCR cut to 3.25%) with a mini lot means a $20 risk (20 pips x $1).
• Volatility Assessment: High-impact events, like Jerome Powell’s upcoming speech on June 02, 2025, can cause large pip movements. A 50-pip spike in GBP/USD during such events signals increased volatility.
• ICT Strategies: In ICT trading, pips help measure entries and exits. For instance, targeting a Fair Value Gap (FVG) 30 pips below an External Range Liquidity (ERL) level on EUR/USD ensures precise trade setups.

Practical Example: Pips in Action

Imagine you’re trading GBP/USD on June 01, 2025. The pair is at 1.2650, and you buy 1 mini lot (10,000 units). The price rises to 1.2680—a 30-pip increase. Since 1 pip on a mini lot is worth $1, your profit is $30 (30 pips x $1). Conversely, if the price drops to 1.2620, you’d lose $30 on a 30-pip decline.

Common Pip-Related Terms

• Pipette: A fractional pip, or 1/10th of a pip (e.g., 1.10505 to 1.10515 is 1 pipette or 0.1 pip).
• Spread: The difference between the bid and ask price, measured in pips. For EUR/USD, a spread of 1.5 pips means a cost of $15 on a standard lot.
• Pip Value: Varies by currency pair and lot size, crucial for calculating trade outcomes.

Conclusion: Mastering Pips for Forex Success

Understanding Forex pips is essential for any trader aiming to succeed in 2025’s dynamic markets. Whether you’re managing risk during volatile events like the Texas Bitcoin Reserve bill’s progression or applying ICT strategies on Mr ICT Trader, pips help you measure price movements, calculate profits, and execute precise trades. Start small, practice on a demo account, and use pips to refine your trading strategy for consistent results.

Disclaimer: Forex trading involves significant risks. Always conduct thorough research and consult a financial advisor before trading.