Trading with reduce-only orders enables traders to execute buy and sell orders that reduce current positions instead of opening opposite long or short positions larger than the asset's value, preventing over-exposure of positions.
In the event that an order marked as "reduce-only" results in an increase in position size, the order will be cancelled. It is most useful when combined with stop orders, although the reduce-only flag can be used with any order type.
1. With Reduce Only Orders, only the user's position is reduced. This option should not be selected when you wish to open a position or increase your position, as it will result in an order failure.
2. If the contract size of the open position is less than or equal to the contract size of the reduce-only order, the order will be automatically reduced or cancelled.
3. Within the Position tab, there is a function called "close by limit/market price" that incorporates the Reduce-only option.
4. PC clients are permitted to use the function.
These advantages include:
Typically, a Reduce Only Order is used in situations where users wish to avoid being identified as holding open positions for orders they have placed. A Reduce Only Order entails adding an additional function to a user's position, so that it may only be closed and will not be accidentally increased.
The current price of your Buy Long 10 BTCUSD contract is 10,000 USDT, and your stop loss order is set at 8,000 USDT. A take profit order with a limit price of 15,000 USDT is placed in order to sell the contract. Below are two examples of setting a Take Profit with and without selecting the Reduce-only option:
※ Without Reduce-only Option
You would profit by selling your long contracts of 10 BTCUSD if the BTC price rose to 15,000 USDT as expected.
A stop-loss order will likely be fulfilled if the Last Traded BTC Price plunges first to 8,000 USDT, then rises to 15,000 USDT to trigger the take profit limit order. Users will likely open an unintended position for 10 BTCUSD short contracts at USD 15,000 USDT when the previous take profit limit order is fulfilled.
※ With Reduce-only Option
However, despite the fact that the Last Traded BTC Price triggers the order's stop-loss first to sell the long contract of 10 BTCUSD, the corresponding take profit limit order at 15,000 USDT will automatically be cancelled because of the reduce only option, thereby ensuring that it is not executed in order to prevent future unintended openings of short positions for 10 BTCUSD contracts.
Let's say you have 5 ETH-USD LONG positions open.
- You will receive an error if you attempt to place a Reduce-Only order to SELL 6 ETH.
- A Reduce-Only order for BUY any size will result in an error and you will not be able to complete the order.
- You will be able to place this order with a valid trigger price if you place a Reduce-Only Stop Market SELL at 6 ETH. Your order will automatically be resized from 6 ETH to 5 ETH when it triggers. As a result, the remaining SELL 5 ETH order will be executed to complete the closing of your LONG position.