# Liquidation

<figure><img src="/files/t0E1DJER6Tcq4pT7rJRQ" alt=""><figcaption></figcaption></figure>

A liquidation occurs when a trader's account equity drops below the required maintenance margin, which is set at 50% of the initial margin at maximum leverage. Depending on the asset, this margin can range from 1.25% (for 40x leverage) to 16.7% (for 3x leverage).

When this threshold is breached:

1. The system attempts to close positions by placing market orders for the full position size.
2. If sufficient capital is recovered and margin requirements are restored, any leftover collateral stays with the trader.
3. If liquidation through the market fails and account equity falls below two-thirds of the maintenance margin, a backstop liquidation occurs through the Liquidator Vault.

* **Cross Margin:** In backstop events, all cross margin and positions are transferred to the liquidator. If no isolated positions exist, the trader's account equity becomes zero.
* **Isolated Margin:** Only the isolated position and its margin are transferred. Other assets and cross positions remain unaffected.

In backstop scenarios, maintenance margin is not returned to the trader — this buffer ensures liquidations remain profitable for the Liquidator Vault.

{% hint style="warning" %}
To avoid backstop liquidation, traders are advised to use stop loss orders or manually exit before their mark price hits the liquidation threshold.
{% endhint %}

***

## Liquidation Price

The liquidation price for a position is calculated as follows:

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

Where:

* `l` = `1 / MAINTENANCE_LEVERAGE`
* `side` = `1` for long, `-1` for short
* For **cross margin**: `margin_available = account_value - maintenance_margin_required`
* For **isolated margin**: `margin_available = isolated_margin - maintenance_margin_required`

{% hint style="info" %}
**Cross margin:** The actual liquidation price is **not** directly dependent on the leverage you set. Choosing a lower leverage simply means more collateral is utilized upfront, but the liquidation threshold is calculated from total account value.

**Isolated margin:** The liquidation price **is** influenced by the leverage you select, because leverage determines the amount of isolated margin allocated to the position.
{% endhint %}

***

## Estimated vs. Actual Liquidation Price

The liquidation price displayed in the interface is an estimate and may differ from the actual liquidation price at the time of execution. Several factors can cause this discrepancy:

* **Dynamic order book liquidity:** Market conditions change continuously. The available liquidity at the time of liquidation may differ from when the estimate was calculated.
* **Funding payments:** Ongoing funding rate payments can gradually increase or decrease your effective margin, shifting the true liquidation threshold over time.
* **Unrealized PnL in other cross positions:** For cross-margin accounts, gains or losses in other open positions affect your total account equity, which in turn moves the liquidation price for all cross positions.

{% hint style="info" %}
If there is not enough margin available to execute a trade, the displayed liquidation price estimate assumes the account will be topped up with additional collateral.
{% endhint %}

***

## Mark Price & Robust Liquidation

BasedApp uses Hyperliquid's mark price system — an aggregated value based on both external CEX data and internal book state — making it more reliable than relying solely on a volatile order book price. This improves fairness and helps prevent unnecessary liquidations during sudden market spikes or thin order book conditions.

To learn more, see the [Hyperliquid Liquidation Docs](https://hyperliquid.gitbook.io/hyperliquid-docs/trading/liquidations).


---

# Agent Instructions: Querying This Documentation

If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question.

Perform an HTTP GET request on the current page URL with the `ask` query parameter:

```
GET https://basedapp.gitbook.io/docs/trading/liquidation.md?ask=<question>
```

The question should be specific, self-contained, and written in natural language.
The response will contain a direct answer to the question and relevant excerpts and sources from the documentation.

Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.