> ## Documentation Index
> Fetch the complete documentation index at: https://docs.everstrike.xyz/llms.txt
> Use this file to discover all available pages before exploring further.

# Deleverage Events: Last Resort for Bankrupt Positions

> When normal liquidation fails, bankrupt positions are closed and counterparties are selected by a leverage × ROE score — not by socialized loss.

A Deleverage Event is Everstrike's last line of defense when standard liquidation cannot resolve a bankrupt position. Rather than spreading losses across all profitable traders, the system closes selected counterparty positions at the Bankruptcy Price — limiting the damage to the smallest possible set of participants.

## When Deleveraging Occurs

A Deleverage Event is only triggered when all four of the following conditions apply simultaneously:

1. A position reaches its **Bankruptcy Price** — the point at which its Gross Position Margin reaches zero.
2. The position **cannot be sold** at that price due to insufficient market liquidity or fast-moving conditions.
3. **No Liquidity Provider** has taken over the position.
4. The **Insurance Fund cannot cover** the resulting loss.

Fast-moving markets can prevent a liquidation order from filling before the price deteriorates further. A lack of opposing liquidity can also prevent a sale at the Bankruptcy Price even when conditions appear stable.

<Info>
  Incremental liquidation and [Risk Limits](/trading/risk-limits) reduce the likelihood of a Deleverage Event. However, they cannot eliminate it entirely during extreme market conditions.
</Info>

## How Deleveraging Works

When a Deleverage Event is triggered, the system automatically closes the bankrupt position at its Bankruptcy Price. It then selects one or more counterparties and closes their positions at the same price.

This approach differs from **socialized loss**, where losses would be distributed proportionally across all profitable traders on the platform. Deleveraging targets specific counterparties based on their risk profile, leaving all other traders unaffected.

## Counterparty Selection

The system prioritizes counterparties with both high leverage and high profit. Each eligible position is assigned a score, and positions with higher scores are selected first:

```text theme={null}
Selection Score = Leverage × Position Size × Return on Equity (ROE)
```

Each component reflects a dimension of risk and profitability:

* **Leverage** — the leverage applied to the position. Higher leverage amplifies both gains and exposure, making the position a stronger counterpart for absorbing the bankrupt position.
* **Position Size** — the notional size of the position. Larger positions can absorb more of the bankrupt position, reducing the number of counterparties that need to be selected.
* **Return on Equity (ROE)** — the position's unrealized profit as a percentage of its equity. A high ROE means the position holds a large cushion of profit that can offset the loss being absorbed.

Positions that score highest across all three factors are selected first until the bankrupt position is fully offset.

## What You Will See

Deleverage Events appear in your **trade history** alongside your normal fills. If the system selects your position as a counterparty, Everstrike also sends you a **detailed email notification** explaining the event, the price at which your position was closed, and any realized P/L.

You do not need to take any action — the closure is automatic and immediate.