Liquidations

Overview

A liquidation event occurs when a trader's position is forcibly closed by a liquidator due to insufficient margin in their account to cover unrealized losses. This happens when the trader's positions move against them to the point where the account equity falls below the maintenance margin, which is half of the initial margin at max leverage, varying from 3-50x. In other words, the maintenance margin is between 1% (for 50x max leverage assets) and 16.7% (for 3x max leverage assets) depending on the asset.

When the account equity drops below maintenance margin, the positions are first attempted to be entirely closed by sending market orders the book. The orders are for the full size of the position, and may be fully or partially closed. If the positions are entirely or partially closed such that the maintenance margin requirements are met, any remaining collateral remains with the trader.

If the account equity drops below 2/3 of the maintenance margin without successful liquidation through the book, a backstop liquidation happens through the liquidator vault.

When a cross position is backstop liquidated, the trader's cross positions and cross margin are all transferred to the liquidator. In particular, if the trader has no isolated positions, the trader ends up with zero account equity.

When an isolated position is backstop liquidated, that isolated position and isolated margin are transferred to the liquidator. The user's cross margin and positions are untouched.

In either case, the maintenance margin is not returned to the user. This is because the liquidator vault requires a buffer to make sure backstop liquidations are profitable on average. In order to avoid losing the maintenance margin, traders can place stop loss orders or exit the positions before the mark price reaches the liquidation price.

Liquidations use the mark price, which combines external CEX prices with Hyperliquid's book state. This makes liquidations more robust than using a single instantaneous book price. During times of high volatility or on highly leveraged positions, mark price may be significantly different from book price. It is recommended to use the exact formula for precise monitoring of liquidations.

Liquidator Vault

Liquidations on Hyperliquid are democratized through the liquidator vault, which is a component strategy of HLP. Positions that are under the maintenance margin are marked as liquidatable and the liquidator vault can call a liquidate function on that position.

The liquidator vault must have sufficient margin to take over both positions and margin of the liquidated position. Note that for cross positions, the liquidator must take over the entire basket of cross margined positions and the cross margin collateral simultaneously.

Liquidations may later be made available via API, but currently the only way to profit from liquidations of other traders is through HLP.

Computing Liquidation Price

When entering a trade, an estimated liquidation price is shown. This estimation may be inaccurate compared to the position's estimated liquidation price due to changing liquidity on the book.

Once a position is opened, a liquidation price is shown. This price has the certainty of the entry price, but still may not be the actual liquidation price due to funding payments or changes in unrealized pnl in other positions (for cross margin positions).

The actual liquidation price is independent on the leverage set for cross margin positions. A cross margin position at lower leverage simply uses more collateral.

The liquidation price does depend on leverage set for isolated margin positions, because the amount of isolated margin allocated depends on the initial margin set.

The precise formula for the liquidation price of a position is

liq_price = price - side * margin_available / position_size / (1 - l * side)

where

l = 1 / MAINTENANCE_LEVERAGE

side = 1 for long and -1 for short

margin_available (cross) = account_value - maintenance_margin_required

margin_available (isolated) = isolated_margin - maintenance_margin_required