How to use the "Reduce-Only" feature? (Position Sizing)

Understanding Reduce-Only Mode

1. Reduce-Only is a risk containment mechanism that restricts traders to executing orders that only decrease or close existing positions.

2. It prevents accidental position reversal or unintended exposure when placing orders near liquidation thresholds.

3. When activated, the system rejects any order that would increase net position size—whether long or short—regardless of order type or direction.

4. This mode becomes especially relevant during high-volatility periods where rapid price swings could otherwise trigger cascading margin calls.

5. Exchanges enforce Reduce-Only at the order submission layer, validating net delta before routing to matching engines.

Activation and Interface Behavior

1. Traders enable Reduce-Only manually via checkbox or toggle in the order entry panel on most derivatives platforms.

2. Once enabled, the interface disables quantity input fields for new entries and grays out leverage selectors to signal restriction.

3. Order preview displays a warning banner indicating “This order will only reduce open position” before confirmation.

4. Market, limit, stop-market, and stop-limit orders all honor Reduce-Only logic as long as they meet the net reduction condition.

5. Some interfaces auto-enable Reduce-Only when account equity falls below maintenance margin by more than 15%.

Position Sizing Implications

1. Position sizing under Reduce-Only must be calculated against current net exposure—not notional value or entry size.

2. A trader holding 5 BTC long cannot submit a 6 BTC sell order; the system caps execution volume at exactly 5 BTC.

3. Partial closures are permitted: a 2 BTC sell order reduces the position to 3 BTC without triggering rejection.

4. Cross-margin accounts apply Reduce-Only across all active contracts in the same settlement currency, not per symbol.

5. Traders must verify net position size using real-time wallet and position APIs rather than relying solely on UI summaries.

Interaction with Liquidation Engine

1. Reduce-Only orders bypass liquidation queue prioritization and execute at top-of-book price if liquidity permits.

2. During exchange-wide liquidation waves, Reduce-Only orders receive higher matching priority than standard market orders.

3. If no counterparty liquidity exists at requested price, the order remains pending until conditions align—no forced slippage occurs.

4. Auto-deleveraging systems do not override Reduce-Only constraints even when counterparty positions are being closed involuntarily.

5. Liquidation price recalculations occur after each Reduce-Only fill, dynamically updating margin ratio based on remaining position size.

Common Questions and Answers

Q: Can I place a Reduce-Only order while holding zero open position?A: No. The system returns an error stating “No active position to reduce” and blocks submission.

Q: Does Reduce-Only affect funding rate accruals?A: No. Funding continues to accrue on the remaining position size until full closure, regardless of Reduce-Only status.

Q: What happens if my Reduce-Only limit order sits unfilled and price moves beyond trigger?A: The order remains active and will execute upon price re-entry into the specified range unless manually canceled.

Q: Is Reduce-Only supported on perpetual swaps only, or also on futures with expiry?A: Both instrument types support Reduce-Only, but futures require alignment with contract-specific settlement rules and open interest decay schedules.