Liquidation & Risk Management on Hyperliquid

Hyperliquid uses a three-stage liquidation system. Stage 1: when your account equity drops below the maintenance margin, the clearinghouse sends market orders to the open order book to close your position. If the book absorbs enough to restore your margin, you keep remaining collateral with no clearance fee charged. Stage 2: if your equity drops below 2/3 of maintenance margin, the HLP vault's liquidator sub-strategy takes over the position at mark price. Stage 3: if HLP cannot absorb the position, auto-deleveraging (ADL) activates, forcibly closing profitable positions on the opposite side.

Unlike most exchanges, Hyperliquid charges no liquidation fee to the liquidated trader. If partial liquidation restores your account above maintenance margin, the remaining position stays open. For positions above $100,000 USDC, only 20% is liquidated in the first attempt with a 30-second cooldown before full-position orders resume.

Maintenance margin is exactly half the initial margin rate at maximum leverage. For BTC (40x max): 1.25% maintenance margin. For 20x max assets: 2.5%. For 10x max: 5%. For 5x max: 10%. For 3x max: 16.7%. These rates increase as your position grows into higher tier brackets.

Your liquidation price is visible in the trading interface. In cross margin, it depends on total account equity across all positions — a losing position can draw from the same pool as your winners. In isolated margin, the liquidation price is determined solely by the margin allocated to that specific position. A practical example: a $10,000 BTC long at $50,000 with $1,000 collateral (10x leverage) liquidates around $45,500.

Hyperliquid uses mark price, not last trade price, for all liquidation triggers. Mark price is the median of three inputs: (1) oracle price plus a 150-second EMA of the Hyperliquid mid-price deviation from oracle, (2) Hyperliquid's best bid/ask mid-price, and (3) a weighted composite from Binance, OKX, Kraken, Bybit, and KuCoin.

This design makes manipulation much harder — a whale cannot crash Hyperliquid's internal order book to trigger liquidations while the broader market holds. However, your position can be liquidated even if the last trade on Hyperliquid's own book has not hit your liquidation level, because external CEX data feeds into the mark price.

Cross margin (the default) shares all collateral across positions. Unrealized gains from one position can support margin for another. This is more capital-efficient but introduces contagion risk — one bad position can cascade into liquidating everything. Isolated margin dedicates specific collateral to each position, compartmentalizing risk so a loss in one market does not affect others.

Use cross margin when running a portfolio where positions hedge each other. Use isolated margin for aggressive trades or when trading low-liquidity assets where you want to cap your maximum loss. In isolated mode, you can add or remove margin after opening a position (except for "strict isolated" assets).

ADL is the last resort. It activates only when both the order book and HLP backstop have been exhausted and a user's account value goes negative. ADL forcibly closes profitable positions on the opposite side, ranked by a formula combining unrealized profit percentage and effective leverage. Large, highly profitable, highly leveraged positions are deleveraged first.

Critically, users with no open positions are never affected by ADL. Only active participants on the relevant opposite side bear the risk. Hyperliquid formally activated cross-margin ADL across all major perp markets in November 2025 after completing internal stress tests.

Use the lowest leverage that meets your risk/reward goals. BTC at 40x leaves only a 1.25% margin buffer — a single bad-news candle can liquidate you. Set stop-loss orders before the mark price reaches your liquidation price — stops execute at a better effective price than forced liquidation. Monitor funding rates: prolonged unfavorable funding drains margin over time, slowly moving your effective liquidation price closer even if spot price is flat.

Risk no more than 2-5% of total equity per trade. During high-volatility events (major news, token unlocks, Fed announcements), widen stops or reduce leverage. Track your account equity, unrealized P&L, and liquidation threshold in real time through the Hyperliquid interface.