Reduce-only order
Also called: reduce only · close-only order
Definition
A reduce-only order is a futures order setting that can only shrink or close an existing position and will never open a new one or increase it.
How reduce-only order works
Normally a sell order on a futures market can either close a long or open a new short. If you place a 2 BTC sell to close a 1 BTC long, the extra 1 BTC opens a short you never intended. Ticking reduce-only prevents that: the exchange only executes the part that reduces your current position.
Reduce-only is mainly used for take-profit and stop-loss orders, and for limit orders placed in advance to scale out of a trade. If your position is closed by another order first, any remaining reduce-only orders are cancelled or rejected instead of opening something new.
Many exchanges set take-profit and stop-loss orders attached to a position as reduce-only by default, but standalone limit or conditional orders may not be. In hedge mode, where you can hold a long and a short on the same contract, closing orders work slightly differently. Check how your exchange labels and handles it.
Example
Suppose you are long 0.6 BTC and place two take-profit limit sells of 0.4 BTC each, at 68,000 and 70,000 USDT, both reduce-only. The first fills and your position drops to 0.2 BTC. When price reaches 70,000, the second order only sells 0.2 BTC and closes the position. Without reduce-only, it would sell 0.4 BTC and leave you with an unwanted 0.2 BTC short.
Common mistakes
- Placing take-profit orders larger than the position without reduce-only, and ending up short.
- Assuming every stop or limit order is reduce-only by default.
- Forgetting that reduce-only orders cannot be used to open a position later.
Learn and practise
FAQ
What does reduce-only mean on Binance or Bybit?
It means the order can only reduce or close your current position. Many exchanges, including Binance and Bybit, offer it as a checkbox on futures orders.
Why was my reduce-only order rejected?
Usually because there was no open position in that direction, or the position was already smaller than the order.