> For the complete documentation index, see [llms.txt](https://references.everstrike.io/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://references.everstrike.io/trading/deleverage-events.md).

# Deleverage Events

A Deleverage Event limits losses when normal liquidation cannot resolve a bankrupt position. It closes selected counterparty positions instead of applying a loss across all profitable traders.

Read [Liquidation](/trading/liquidation.md) and [Liquidity Providers](/trading/liquidity-providers.md) for the preceding risk controls.

### When deleveraging occurs

A Deleverage Event occurs only when all of these conditions apply:

1. A position reaches its Bankruptcy Price.
2. The position cannot be sold at that price.
3. No Liquidity Provider takes over the position.
4. The Insurance Fund cannot cover the resulting loss.

Fast-moving markets can prevent a liquidation order from filling. A lack of opposing liquidity can also prevent a sale at the Bankruptcy Price.

Incremental liquidation and [Risk Limits](/trading/risk-limits.md) reduce the likelihood of this outcome. They cannot eliminate it during extreme market conditions.

### How deleveraging works

A Deleverage Event automatically closes the bankrupt position at its Bankruptcy Price. The system then selects one or more counterparties and closes their positions.

This differs from socialized loss, where losses are distributed among profitable traders.

### Counterparty selection

The system prioritizes counterparties with high leverage and high profit. A higher score increases the likelihood of selection:

`Selection Score = Leverage × Position Size × Return on Equity (ROE)`

Where:

* `Leverage` is the leverage applied to the position.
* `Position Size` is the position's notional size.
* `ROE` is the position's Return on Equity.

### What you will see

Deleverage Events appear in your trade history. If the system selects you, Everstrike also sends a detailed email notification.