Reduce-only is a flag you can add to futures orders, mainly take profits and stop losses. The exchange checks the order against your open position: a reduce-only sell can only close a long, and a reduce-only buy can only close a short. If the position is already closed, for example by a stop, the remaining reduce-only orders cannot fill into a new one.
Example
You are long 1 BTC with a take profit for 1 BTC at $66,000 and a stop for 1 BTC at $61,000. Price drops and the stop closes the trade. Without reduce-only, the take profit is still a live sell order, and if price later rallies to $66,000 it opens a 1 BTC short you never wanted. With reduce-only, it simply cannot fill.
Why it matters
Leftover exit orders that open unwanted positions are a common and expensive mistake. Reduce-only makes exit orders safe to leave on the book and stops a partial close from accidentally flipping you to the opposite side.
Common mistake
Leaving stops and targets without reduce-only after changing the position size. If you close half the position by hand, a full-size exit order without the flag sells more than you hold and opens a position in the other direction.
FAQ
- Should every stop and take profit be reduce-only?
- In most cases, yes. It is the simplest way to make sure exit orders only ever exit.
- What happens if a reduce-only order is larger than my position?
- Most exchanges cut it down to the position size or cancel the excess, so it can only close what you hold.
- Do I need reduce-only in hedge mode?
- In hedge mode each order targets the long or the short side explicitly, so closing orders already behave like reduce-only on that side.