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You hold a 0.01 BTC long and sell 0.02. What is left?Reduce-only selllong0.01Beforesell 0.02 →0.01nottraded0 BTCYou hold nothingThe extra 0.01 does not tradeAfterNormal selllong0.01Beforesell 0.02 →short0.01You hold a 600 USDT shortThe extra 0.01 opens itAfter
You hold a 0.01 BTC longand sell 0.02. What is left?Reduce-only selllong0.01sell 0.02 →BeforeAfter0.01nottraded0 BTCYou hold nothingThe extra 0.01 does not tradeNormal selllong0.01sell 0.02 →BeforeAftershort0.01You hold a 600 USDT shortThe extra 0.01 opens it

The same sell, twice. One closes you, one flips you.

Reduce-only

A reduce-only order can only make your position smaller. It never opens or grows a position.

Lesson 7 of 74 min3 parts

Updated . Cryptathon rules checked on .

A reduce-only order can only make your position smaller. It never opens a position or makes one bigger. If it is bigger than the position, it is trimmed to the position. So a reduce-only sell of 0.02 BTC against a 0.01 BTC long closes the long and stops. A normal sell would also open a 0.01 BTC short.

By the end, you can

  1. 1Work out what a reduce-only order trades when it is bigger than the position
  2. 2Say why exits are reduce-only
  3. 3Say what reduce-only does not change

1 of 3

What does a reduce-only order do?

A reduce-only order can only make your position smaller. On Cryptathon, a reduce-only order that is bigger than the position is trimmed to the position, so it can never grow or flip it.

A normal order does not know about your position. A sell of 0.02 BTC sells 0.02 BTC. If you hold a long of 0.01 BTC, the first 0.01 closes the long and the next 0.01 opens a short.

Worked example

A sell bigger than the long

You hold a long of 0.01 BTC, with BTC at 60,000. You send a sell of 0.02 BTC. What happens with reduce-only, and without it?

  1. 1
    Find the extra sizeThe sell is this much bigger than the long.
    0.02 − 0.01 = 0.01 BTC
  2. 2
    Reduce-only: find what is leftThe order is trimmed to 0.01. It closes the long, and the extra 0.01 is cut off.
    0.01 − 0.01 = 0 BTC
  3. 3
    Without reduce-only: value the extraThe extra 0.01 trades too and opens a short this big.
    0.01 × 60,000 = 600 USDT

AnswerWith reduce-only you hold nothing, which is what you wanted. Without it you now hold a 600 USDT short you did not plan.

Your long0.01 BTCReduce-onlysell 0.02 BTC0.01 trades0.01 cut offOnly the size of your position can trade.
Your long0.01 BTCReduce-onlysell 0.02 BTC0.01 trades0.01 cut offOnly the size of your position can trade.
Figure 1 The 0.02 BTC reduce-only sell meets a 0.01 BTC long. The first 0.01 trades and closes the long. The other 0.01 is cut off.
Your turn You hold a short of 3 SOL. You send a reduce-only buy of 5 SOL. What do you hold after it fills?
  1. A long of 2 SOL

    That is what a normal buy does. Reduce-only stops at the size of the short.

  2. Nothing

    Right. The order is trimmed to 3 SOL, which closes the short.

  3. A short of 3 SOL

    The order is not refused. It is trimmed to 3 SOL, which closes the short.

  4. A short of 8 SOL

    A buy makes a short smaller. It cannot add to it.

Show the answer

B: Nothing. The order is trimmed to 3 SOL, which closes the short.

2 of 3

Why are exits reduce-only?

An exit fires later, often when you are not watching. By then your position may be smaller than when you set the exit. If the exit were a normal order, it could close what is left and then open a new position on the other side. That is a flip.

On Cryptathon, each exit is a reduce-only stop-market order that fires when the mark price reaches your level. Liquidation works the same way: the exchange closes the position with a reduce-only order; if it does not fill, the insurance fund takes it over. So no exit can flip you.

Worked example

A stop after you closed half

You hold a long of 0.01 BTC with a stop sell of 0.01 BTC. You close half the long by hand. Later BTC falls to 59,400 and the stop fires. What does it trade?

  1. 1
    Find what you still holdYou closed 0.005 by hand.
    0.01 − 0.005 = 0.005 BTC
  2. 2
    Find the extra in the stopThe stop is bigger than the long by this much.
    0.01 − 0.005 = 0.005 BTC
  3. 3
    Without reduce-only: value the flipThe extra would open a short this big.
    0.005 × 59,400 = 297 USDT

AnswerReduce-only, the stop sells the 0.005 BTC you still hold and stops there. A normal stop would also open a 297 USDT short, from an exit you set for a different position.

Your BTC position+0.01+0.0050−0.005Close half by handStop firesReduce-only: 0Normal stop: short 0.005
Your BTC position+0.01+0.0050−0.005Close half by handStop firesReduce-only: 0Normal stop: short 0.005
Figure 2 Your position over time. You close half by hand, then the stop fires. With reduce-only you end at 0. Without it you end with a 0.005 BTC short.
Your turn Why is each take-profit and stop-loss on Cryptathon a reduce-only order?
  1. So it can only close what you hold, never open a new position

    Right. An exit fires later, and reduce-only keeps it from flipping you.

  2. So it fills at a better price

    Reduce-only limits the size. It says nothing about the price.

  3. So it pays no fee

    A reduce-only order that trades pays the trading fee like any other.

  4. So it never part-fills

    Reduce-only does not change how the book fills the order.

Show the answer

A: So it can only close what you hold, never open a new position. An exit fires later, and reduce-only keeps it from flipping you.

3 of 3

What does reduce-only not change?

Reduce-only controls the size of an order and nothing else. A reduce-only market order still sells to the bids in the book, so in a fast move it can fill below the price you hoped for. And it still pays the trading fee on the size that trades. A market order pays the taker fee, 0.05% on Cryptathon. On Cryptathon there is no trading fee on the liquidation close, but every other close pays.

Worked example

The fee on a reduce-only close

You close a long of 0.01 BTC at 60,000 with a reduce-only market sell. Your margin was 60 USDT. What fee do you pay?

  1. 1
    Find the size that tradesThe fee is a share of this.
    0.01 × 60,000 = 600 USDT
  2. 2
    Find the taker feeReduce-only does not change the fee rate.
    600 × 0.05% = 0.30 USDT
  3. 3
    Compare it with your marginThe same as a normal sell of 0.01 BTC.
    0.30 ÷ 60 = 0.5%

Answer0.30 USDT. Without reduce-only, a sell of 0.01 BTC pays the same. Reduce-only changes what can trade, not what it costs.

Reduce-onlysell 0.01 BTC600 USDTfee 0.30 USDTNormalsell 0.01 BTC600 USDTfee 0.30 USDTThe 0.05% taker fee on 600 USDT is the same either way.
Reduce-onlysell 0.01 BTC600 USDTfee 0.30 USDTNormalsell 0.01 BTC600 USDTfee 0.30 USDTThe 0.05% taker fee on 600 USDTis the same either way.
Figure 3 Closing 0.01 BTC at 60,000 with a market sell. With or without reduce-only, the size that trades is 600 USDT and the fee is 0.30 USDT.
Your turn Your reduce-only stop sell of 0.01 BTC fires in a fast fall. Which is true?
  1. It sells at your trigger price

    Reduce-only limits the size, not the price. The fill comes from the bids in the book.

  2. It can fill below the price you hoped for

    Right. It is still a market order, so it takes the bids that are there.

  3. It pays no fee

    It trades, so it pays the taker fee on 0.01 BTC.

  4. It can open a short if the price falls fast

    Reduce-only never opens a position, however fast the price moves.

Show the answer

B: It can fill below the price you hoped for. It is still a market order, so it takes the bids that are there.

Common questions

Does reduce-only protect you from liquidation?

No. Reduce-only controls only the size of an order. It does not change your margin, your leverage or your liquidation price. A 10x long from 60,000 is still liquidated near 54,300. To exit before that, set a stop-loss between the entry and the liquidation price. On Cryptathon the liquidation itself uses a reduce-only order, so it closes the position without flipping it.

Can a reduce-only order close only part of a position?

Yes. A reduce-only order trades its own size, up to the size of the position. If you hold a 0.02 BTC long and send a reduce-only sell of 0.01 BTC, it closes half, and you still hold a 0.01 BTC long. Only the part bigger than the position is cut off, so a sell of 0.03 BTC would close the whole 0.02 BTC.

When do you need reduce-only?

Use it on any order that is meant to close, most of all one that waits or fires later. Your position can change before the order trades, for example when you close half by hand. A reduce-only order then trades only what is left. On Cryptathon take-profit, stop-loss and liquidation orders are already reduce-only, so you do not set it for them.

Check yourself

Three questions on the whole lesson.

Question 1 of 3 You hold a long of 0.03 BTC. You send a reduce-only sell of 0.05 BTC. What do you hold after it fills?
  1. Nothing

    Right. The order is trimmed to 0.03 BTC, which closes the long.

  2. A short of 0.02 BTC

    That is what a normal sell does. Reduce-only stops at the size of the long.

  3. A long of 0.03 BTC

    The order is not refused. It is trimmed to 0.03 BTC, which closes the long.

  4. A short of 0.05 BTC

    The first 0.03 of any sell closes the long. And reduce-only never opens a short.

Show the answer

A: Nothing. The order is trimmed to 0.03 BTC, which closes the long.

Question 2 of 3 You hold a long of 0.02 BTC. You send a normal sell of 0.03 BTC, not reduce-only. What do you hold after it fills?
  1. Nothing

    That is what reduce-only would do. A normal sell trades all 0.03 BTC.

  2. A long of 0.01 BTC

    A sell makes a long smaller. 0.02 closes it, and there is 0.01 more to sell.

  3. A short of 0.01 BTC

    Right. 0.02 closes the long, and the other 0.01 opens a short.

  4. A short of 0.03 BTC

    The first 0.02 closes the long. Only 0.01 is left to open a short.

Show the answer

C: A short of 0.01 BTC. 0.02 closes the long, and the other 0.01 opens a short.

Question 3 of 3 You hold no position in BTC. You send a reduce-only buy of 0.01 BTC. What happens?
  1. It opens a long of 0.01 BTC

    Reduce-only never opens a position.

  2. It opens a short of 0.01 BTC

    A buy cannot open a short, and reduce-only opens nothing.

  3. It waits and opens a long later

    Reduce-only never opens a position, now or later.

  4. Nothing trades

    Right. With no position there is nothing to make smaller.

Show the answer

D: Nothing trades. With no position there is nothing to make smaller.

What to remember

  1. What does a reduce-only order do?A reduce-only order is trimmed to your position, so it can only make it smaller.
  2. Why are exits reduce-only?An exit that is reduce-only can never flip you into a new position.
  3. What does reduce-only not change?Reduce-only limits the size of an order, not its price or its fee.