What is liquidation?

When a position is liquidated

The documentation puts it plainly: a liquidation event occurs when a trader's positions move against them to the point where the account equity falls below the maintenance margin. The maintenance margin is the minimum equity a position may stand on, and it is a share of the notional, not of the margin you posted.

That share is half the initial margin at the market's maximum leverage, and the maximum varies from 3x to 40x. So the maintenance margin is between 1.25% of the notional on a 40x market and 16.7% on a 3x one. For assets with margin tiers, the rate is that of the tier the position's value falls in.

Which equity is read depends on the margin mode. A cross position is liquidated when the account value, unrealized profit and loss included, falls below the maintenance margin times the total open notional. An isolated position follows the same rule with only its own margin and notional as inputs.

What happens, in order

1. Market orders go to the book. The documentation says the positions are first attempted to be entirely closed by sending market orders to the book, for the full size of the position, and they may fill fully or partly.
2. If that is enough, you keep the rest. If the fills bring the account back to meeting the maintenance margin requirement, any remaining collateral stays with the trader, and there is no clearance fee on liquidations.
3. Below two thirds, the backstop takes over. If the equity drops below 2/3 of the maintenance margin without a successful liquidation through the book, the liquidator vault takes the position over.
4. In a backstop, the maintenance margin is not returned. The documentation explains that the liquidator vault needs that buffer for backstop liquidations to be profitable on average. Exiting before the mark price reaches the liquidation price is how a trader keeps it.

The backstop: the liquidator vault and HLP

The liquidator vault is a component strategy of HLP, Hyperliquid's protocol vault, and positions below two thirds of their maintenance margin can be taken over by it. On average, the documentation says, backstop liquidations are profitable for the liquidator.

Where that profit goes is the part worth knowing. On most venues it goes to the operator or to privileged market makers who internalize the flow; on Hyperliquid the profit and loss stream from liquidations goes entirely to the community through HLP.

What the backstop takes depends on the mode. When a cross position is backstop liquidated, all of the trader's cross positions and cross margin are transferred to the liquidator, so a trader holding no isolated position ends with zero account equity. When an isolated position is, only that position and its isolated margin go. Each dex deployed under HIP-3 has its own onchain backstop liquidator.

Partial liquidations

A large position is not thrown at the book whole. For a liquidatable position larger than 100k USDC (10k USDC on testnet), only 20% of it is sent as a market liquidation order to the book.

After a block in which any of a user's positions is partially liquidated, there is a cooldown of 30 seconds, and during it every market liquidation order for that user is for the entire position. The slicing spares the book; the cooldown keeps the slicing from going on forever.

The liquidation price, and why it moves

Hyperliquid shows an estimate before you enter and a price once you are in. The documentation is careful about both: the estimate can be inaccurate because the book's liquidity changes, and the price shown afterwards has the certainty of the entry price but still moves with funding payments and, on a cross account, with the unrealized profit and loss of your other positions.

The exact formula is liq_price = price - side * margin_available / position_size / (1 - l * side), where l = 1 / MAINTENANCE_LEVERAGE, side is 1 for a long and -1 for a short, and margin_available is account_value - maintenance_margin_required for a cross position or isolated_margin - maintenance_margin_required for an isolated one.

Liquidations are measured on the mark price, which combines external exchange prices with Hyperliquid's own book state, and the documentation warns that in volatile times, or on a highly leveraged position, the mark price can differ significantly from the book price. For precise monitoring it recommends the formula.

The room the agent leaves

The daily pilot's positions by steps place no stop on the order book. Its ladder instead leaves room for the price to move 100% against the complete position before any liquidation, and that room fixes the size: the base stake is computed from the leverage, the room and the sum of the ladder, which with the defaults puts the stake at 2.78% of the equity.

The charter field is liquidationMinPct, 100 by default, with bounds from 25 to 500. A smaller figure buys a larger stake with less room; a larger one does the reverse. This site's ladder calculator computes the steps, the average and that room from your own figures.