Reduce-only limits an order to reducing or closing an existing derivatives position. It prevents a closing order from becoming an unintended opening order after the position has already been reduced or closed elsewhere.
When an exit outlives the position
Suppose a trader holds a long position of five contracts and places a reduce-only sell order for five. If another exit closes the long first, the outstanding sell cannot subsequently open a new short through that reduce-only instruction. If only two long contracts remain, an implementation may reduce the eligible quantity to two or cancel the order according to venue rules.
The selected position and position mode matter. A trader using separate long and short positions must check which position the order is intended to reduce.
A size restriction, not loss protection
Reduce-only does not itself set a trigger or execution price. A limit order still needs matching liquidity and may remain unfilled. The instruction does not prevent liquidation or guarantee an exit before losses increase.
Venues may reject orders when no reducible position exists and may adjust quantities because of other outstanding closing orders. Review both position size and order status after changes.