Interpretation of Contract Type (4): Reduce-Only Commission
GAEA Headquarters — The Reduce-Only commission allows investors to reduce the position without increasing it. So, what is the use of such commission?
It sounds similar with the general commission. However, it is not the same. Abstractly speaking, reduce-only commission is generally used by investors who want to avoid the the commission to be open. For instance, when setting a stop loss and a profit-taking commission, the investor can add the reduce-only property for the commission, so that the commission is not submitted as an open position.
For example, if an investor holds a long position in a contract and the current contract price is 100, the take profit point is 120. The investor submits a limit sale order with a price of 120. If the investor’s long position is closed due to other trades before the price reaches 120, then when the price reaches 120, the investor will sell at 120 to open the position. In order to avoid this, investors can use the reduce-only commission.
The reduce-only commission can also be applied to the split transaction. For example, if the investor holds 10 pieces of contracts with the current price of 100 Yuan, the investor wants to sell 5 pieces of contracts at 120 Yuan, and selling off the remaining contracts at 130 Yuan. The investor can then sell 5 pieces of contracts at a price of 120 Yuan, and 10 pieces of contracts at a price of 130 Yuan. When the price reaches 130 Yuan, all 10 contracts in hand will be sold, and 5 contracts will not be shortened because 5 contracts have been sold in before that.
To provide you with another example, let’s say that the investors are currently planning to buy 10 lots in 6500. If the price falls to 6000 by buying 5 lots, then set a profit of 15 lots at 7000. We assume that the market as we expected, first reached 6500 and then rushed to 7000. This is already our most ideal situation, so it doesn’t matter if this situation is a reduce-only commission. But suppose the situation is not so good as it is now, and the price will only rise when it falls to 6200. It will then run to more than 7000, and this situation will be little sad.
Because we will be at over 7000, we not only lost more than one order, but also placed 5 empty orders! It is too embarrassing to cause such a loss! However, if we reduce-only this artifact, we don’t have to worry about the situation so much. We can close 10 lots in 7000, with no extra empty orders. How about that? Was it particularly useful?
In conclusion, this commission method is only used to allow investors to close positions and not to open positions. This is also a must-have for a contract model that cannot have multiple single orders at the same time.
We hope that this introduction to the reduce-only commission will benefit you in the future.
Learn more about GAEA’s Contract Descriptions:
Interpretation of Contract Type (1): FOK Commission
Interpretation of Contract Type (2): Iceberg Commission
Interpretation of Contract Type (3): Passive Delegate
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