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Liquidation Price Explained: How to Calculate It on Perps

Updated · 2 min read

Your liquidation price is the mark price at which your account equity falls below the maintenance margin, and the exchange starts force-closing your position. It depends on your entry price, position size, the collateral backing the position and the asset's maintenance margin rate. Maintenance margin is half the initial margin at max leverage on Hyperliquid (1.25% for 40x assets up to 16.7% for 3x assets).

  • Liquidation triggers on mark price, not the last trade on the chart.
  • Rule of thumb: at leverage L, an isolated position is liquidated after a move of roughly (1/L − maintenance rate), ≈ 9% at 10x on a 1%-maintenance asset.
  • Cross margin: your liquidation price depends on total account equity, not the leverage setting.
  • Isolated margin: the liquidation price depends directly on the margin you assign.
  • In prop accounts, the firm's drawdown limit closes you long before exchange liquidation.

The formula

liq_price = entry − side × margin_available / size / (1 − mm × side)

Hyperliquid's published formula. side = 1 for long, −1 for short. mm = maintenance margin rate (1 / maintenance leverage). margin_available = account value − maintenance margin required (cross), or isolated margin − maintenance margin required (isolated).

Isolated long: 1 BTC at $100,000, 10x, maintenance 2.5% (max leverage 20x)

  1. Initial margin = $100,000 / 10 = $10,000.
  2. Maintenance margin required = 2.5% × $100,000 = $2,500.
  3. margin_available = $10,000 − $2,500 = $7,500.
  4. liq = 100,000 − 1 × 7,500 / 1 / (1 − 0.025) = 100,000 − 7,692 ≈ $92,308.
  5. A ≈ 7.7% drop liquidates the position.

What happens during liquidation

  1. Equity drops below maintenance margin → the venue sends market orders to close the position. On Hyperliquid, positions over $100,000 are closed 20% at a time with a 30-second cooldown.
  2. If the book closes you in time, you keep whatever margin is left. Hyperliquid charges no liquidation fee; many centralized exchanges do.
  3. If equity falls below 2/3 of maintenance before the book can absorb it, a backstop liquidator (Hyperliquid's liquidator vault, part of HLP) takes the position and the maintenance margin is lost.
  4. If an account goes negative, auto-deleveraging closes profitable traders on the other side to keep the venue solvent.

Why the displayed liquidation price moves

  • Funding payments change your margin, so they change the liquidation price.
  • In cross margin, profits or losses on other positions shift every position's liquidation price.
  • Assets with margin tiers raise the maintenance rate as position size grows.
  • Adding isolated margin moves the liquidation price away; removing it moves it closer.

How to avoid liquidation

  • Size positions by the stop-loss distance you'd accept, not by max leverage.
  • Place a stop well before your liquidation price. On Hyperliquid the maintenance margin isn't returned in a backstop liquidation.
  • Use isolated margin for high-risk trades so one position can't drain the account.
  • Watch funding on crowded trades held for days.

Prop accounts: the real 'liquidation' is the drawdown floor

On a funded account with a 5% max drawdown, a 10x position hits the firm's breach level after a 0.5% move against you, long before the exchange would liquidate. Calculate position size from the daily loss limit and max drawdown, not the liquidation price.

Frequently asked questions

Does higher leverage change my liquidation price in cross margin?

Not by itself. In cross margin, the liquidation price depends on the equity backing the position. The leverage setting only changes how much margin is reserved at entry.

Can I lose more than my margin when liquidated?

On most crypto venues, no. The venue closes you before equity goes negative, and insurance funds, backstop liquidators or ADL absorb any gap.

What is maintenance margin?

The minimum equity needed to keep a position open. On Hyperliquid it's half the initial margin at the asset's maximum leverage.

Sources

Educational content, not financial advice. Perps and prop evaluations are high-risk; firm rules change, so check each firm's current terms.

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