The Reduce-only option enables you to create buy and sell orders meant to reduce an existing position without opening an opposite long or short position worth more than the current value of your leveraged assets.
This essentially means that you will not be able to execute more than the size of your position, allowing you to trade without risking over-exposure of your assets.
How to use a Reduce Only option
The Reduce-only option can be used in conjunction with any of the available order types on margin trading.
When using the Reduce-only option with your limit orders, traders may ensure that a limit order set to take profit is not accidentally executed as a new position in the opposite direction if the current position has already been closed/stopped out/liquidated.
Example: You have a long position of 300 EOS/USD, opened at 7.7381 USD/EOS, with a current market price of 7.7280 USD. As the ticker price goes up, and your purpose is to take profits out when it has risen to your expected threshold, you prepare for the forecasted scenario and place a limit sell order at 8.2 USD per unit, for the calculated maximum value that your assets can support, of 608.9984 EOS. Having the Reduce Onlymark applied to the order will only allow you to execute 300 EOS, as that would be the maximum number of units that can be traded without reversing the course of your position.
If you have any questions regarding Reduce Only, feel free to contact Bitfinex Support.