> For the complete documentation index, see [llms.txt](https://learn.trovemarkets.com/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://learn.trovemarkets.com/risk/liquidations-and-insurance.md).

# Liquidations & insurance

### Liquidation flow (simplified)

1. **Breach detected:** `Equity < MM Requirement`.
2. **Partial reduce:** Liquidator/engine reduces position to restore health (priority on largest risk).
3. **Full close:** If partial fails, positions are closed at market until account > MM or position is flat.
4. **Shortfall handling:** Any residual shortfall is covered by **Insurance**; if insufficient, **ADL** (auto‑deleveraging) may apply as a last resort.

{% content-ref url="/pages/jMZvtgNUglbJwypdel8f" %}
[Margin calculations](/risk/margin-calculations.md)
{% endcontent-ref %}

***

### Insurance layers

* **Primary:** Fees & penalties directed to an insurance buffer.
* **Secondary:** Backstop liquidity mechanisms.
* **Last resort:** ADL targeting the most profitable opposing positions with transparent rules.

{% hint style="info" %}
Liquidations are **designed to be incremental** where possible, to minimize market impact and protect healthy counterparties.
{% endhint %}

***

### Safety nets & waterfall

| Layer                 | What it does                                          | When it triggers                        |
| --------------------- | ----------------------------------------------------- | --------------------------------------- |
| **Primary engine**    | Attempts **partial reductions** to get back above MMR | On first breach                         |
| **Full close**        | Closes the position entirely if partial fails         | If reductions can’t restore maintenance |
| **Liquidator Vault**  | **Backstop** that assumes remaining risk              | If value < **2/3 × MMR**                |
| **Insurance buffer**  | Covers residual shortfalls                            | After closeout, if needed               |
| **ADL (last resort)** | De-risks by reducing PnL-rich opposing positions      | Only if insurance insufficient          |

***

### What the trader sees

* Real-time health in the position panel (margin buffer vs. maintenance).
* Automatic reductions/closures if thresholds are hit.
* Remaining collateral (if any) returns to the trader post-closeout.
* No extra liquidation penalty charged by Trove.


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