> For the complete documentation index, see [llms.txt](https://crypta.gitbook.io/crypta/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://crypta.gitbook.io/crypta/probability-exchange/excess-exposure-closeout.md).

# Excess Exposure Closeout

Excess exposure closeouts protect the open bankroll liquidity pool ("LP") from taking on excessive directional market risk.

The liquidity pool acts as the counterparty to all trader positions on Crypta. When long and short positioning within a market is balanced, the gains and losses from subsequent price movements offset one another.

When positions are not balanced, the liquidity pool takes on the excess risk. To help prevent the bankroll from going bankrupt the risk engine applies market-specific and aggregate market exposure limits. If exposure exceeds the maximum permitted level, positions contributing to that exposure are automatically reduced until the exposure is back within the risk limits.

#### Excess Market Exposure

For each synthetic market, excess exposure is calculated as the absolute difference between aggregate long and short quantity:

$$
E\_i = \left| \sum n\_{\text{Long},i} ;-; \sum n\_{\text{Short},i} \right|
$$

Where:

$$
E\_i = \text{Excess long vs short quantity for a given synthetic market}
$$

**Market-Specific Limits:**

The liquidity pool's exposure to any individual market is limited to 2.5% of Net Asset Value ("NAV").

$$
E\_i *\triangle\_{\max,i} \le 0.025*LP\_{NAV}
$$

If exposure exceeds this level, the risk engine automatically reduces positions contributing to the excess side of the market until exposure is brought back within the permitted limit.

Closeouts begin with the largest positions contributing the most to the excess exposure.

**Aggregate Market Limits:**

The liquidity pool's exposure to all markets combined is limited to 5.0% of NAV.

$$
\sum\_{i=1}^{k} E\_i *\triangle\_{\max,i} \le 0.05*LP\_{NAV}
$$

If aggregate exposure exceeds this limit, the risk engine automatically reduces positions until total exposure is brought back within the permitted level.

Closeouts begin with the market contributing the greatest excess risk exposure, followed by the largest positions contributing to that exposure.