Reduce-only orders are used by traders who wish to reduce their current open standing order either partially or completely. By selecting the 'reduce only' or ‘close on trigger’ function, any orders that would increase the current open standing position will automatically be cancelled.
This reduces the risk for traders accidentally opening a new position, while trying to close one for example to take profit.
This order only works at the time of an open standing position, and will automatically cancel in case there is no open standing position.
For example: You have a current open standing position of 100 contracts at a BTC limit price of $9,950 USD.
- You want to place a limit stop-loss at $9,850 and a take-profit order at $10,050, without having the risk of the stop-loss to hit first (putting you at a 0 contract open position) and the take-profit order to hit next without the ‘reduce-only’ option, resulting in an open standing position of -100 contracts.
- In order to do so, you are required to do the following:
- Place a conditional limit buy order at $9,850 for 100 contracts with the ‘close on trigger’ button selected.
- Place a conditional limit sell order at $10,050 for 100 contracts with the ‘close on trigger’ button selected.
- By doing so, there is no longer the risk of accidentally opening a new position. While trying to take profit or reducing your risk with a stop-loss. This same situation can be done with limit buy and sell orders, using the 'reduce only' function.