> For the complete documentation index, see [llms.txt](https://docs.paragon.trade/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.paragon.trade/trading/liquidations.md).

# Risk & Liquidations

When a position's margin falls below maintenance requirements, Hyperliquid's liquidation engine closes it automatically. Understanding this process helps you manage risk effectively.

**Quick summary**: Maintain margin above maintenance requirements. Use stop losses. Monitor leverage. Liquidation prices are visible on every position.

## How Liquidations Work

1. **Trigger** - Position margin drops below maintenance margin requirement
2. **Partial liquidation** - Engine attempts to liquidate \~20% of the position first
3. **Full liquidation** - If partial fails to restore margin, full position closes at market price
4. **Settlement** - Remaining collateral (if any) returns to your account

If liquidation results in negative equity, the insurance fund covers the shortfall. If the insurance fund is depleted, Auto-Deleveraging (ADL) may reduce profitable positions on the other side.

→ [Hyperliquid Liquidations](https://hyperliquid.gitbook.io/hyperliquid-docs/trading/liquidations)

## Liquidation Price

Your liquidation price is calculated from:

* Entry price and position size
* Leverage used
* Maintenance margin requirement (varies by position size)

The Hyperliquid interface displays your estimated liquidation price for each open position in real time.

## Avoiding Liquidation

| Strategy                 | How it helps                                                                                                    |
| ------------------------ | --------------------------------------------------------------------------------------------------------------- |
| **Monitor margin ratio** | Keep well above maintenance threshold; set alerts if available                                                  |
| **Use stop losses**      | Exit positions automatically before reaching liquidation price                                                  |
| **Manage leverage**      | Lower leverage = wider buffer to liquidation price                                                              |
| **Add margin**           | In cross margin mode, additional deposits to your Hyperliquid account automatically increase your margin buffer |

## Auto-Deleveraging (ADL)

ADL is a last-resort mechanism. When liquidations cannot be filled and the insurance fund is exhausted, ADL automatically reduces opposing positions starting with the highest-profit, highest-leverage traders. This ensures the system remains solvent.

→ [Hyperliquid ADL Documentation](https://hyperliquid.gitbook.io/hyperliquid-docs/trading/liquidations)

## Backstop Liquidator

Paragon markets are covered by an onchain backstop liquidator designated by the Hyperliquid protocol. Where a position has fallen below maintenance margin and cannot be cleared through the order book, the backstop assumes that position directly and manages the unwind.

Because the handoff happens before deleveraging is considered, a position the backstop absorbs never reaches profitable traders on the opposite side. Markets it covers are correspondingly less exposed to ADL when books thin out, and less bad debt accumulates when liquidations fill poorly.

The backstop does not replace ADL. ADL remains the final step, applied only where liquidations and the backstop together cannot restore solvency.


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