Liquidation cascades: how forced orders chain together

A liquidation cascade is a chain reaction: a price move liquidates leveraged positions, the forced orders push the price further in the same direction, and that reaches the liquidation prices of the next positions. It ends when the order book absorbs the forced orders, when no more liquidation levels sit close enough, or when traders add margin before the price arrives.

This guide explains the mechanics step by step, what limits a cascade, and how a cascade shows up in liquidation data.

Why forced orders point in the direction of the move

A long position is liquidated when the price falls far enough; a short position when it rises far enough. The definition of the liquidation price itself is on our distance to liquidation page.

When a long is liquidated, the exchange closes it. Closing a long means trading against the bids, the same direction as the move that caused the liquidation. When a short is liquidated, the closing order trades against the asks, again in the direction of the move. A liquidation never takes the other side of the move; it always adds to it.

On Hyperliquid, a liquidatable position is first closed with market orders for its full size, sent to the order book.¹ Market orders take whatever liquidity rests in the book. If the book is thin, those orders walk through several price levels, and the price that results can be lower (for longs) or higher (for shorts) than where the liquidation started.

The chain, step by step

1. A move starts. Any reason will do: news, a large order, a shift in funding. The cascade does not need a special trigger.
2. The first levels are reached. Positions whose liquidation price sits closest to the current mark price become liquidatable first.
3. Forced orders hit the book. Their market orders consume liquidity on one side and move the price further.
4. The next levels are reached. If more positions have liquidation prices just beyond the new price, they become liquidatable too, and their orders add another push.
5. Stops join in. Ordinary stop orders resting in the same area trigger as the price passes and also become market orders in the same direction (our whale stops page maps where the largest tracked wallets keep them).

Each round needs two things: liquidation or stop levels close to the new price, and too little resting liquidity to absorb the orders of the previous round. When either is missing, the chain stops.

What slows a cascade down

Several mechanisms work against the chain. Some are built into the venue, some come from other traders.

Partial liquidations. On Hyperliquid, a liquidatable position larger than 100k USDC is not sent to the book in one piece: only 20% of it goes out as a market liquidation order. After a block in which a user was partially liquidated, a cooldown of 30 seconds applies, and during that cooldown all market liquidation orders for that user cover the entire position.¹ Splitting the largest positions spreads their impact on the book.

The backstop. If the order book cannot close the position and its account equity falls below two thirds of the maintenance margin, the liquidator vault, a strategy that is part of the HLP vault, takes the position over instead of sending more orders to the book.¹ The position changes hands without a further market order at that moment.

Auto-deleveraging as the last step. If an account's value or an isolated position's value turns negative, Hyperliquid closes profitable positions on the other side against it, ranked by profit and leverage, at the previous mark price.² It is a solvency safeguard, not a regular part of a cascade, and it does not send orders to the book.

Other traders. Resting limit orders are the real brake. Market makers and traders who place bids into a fall (or offers into a rise) absorb forced orders. A cascade is fastest where that liquidity is thinnest.

Margin top-ups. Liquidation levels are visible to their owners. Many add margin or reduce size as the price approaches, which moves their liquidation price away before the price gets there. This is the main reason why a band on a liquidation heatmap can fade before it is reached.

Mark price and cascades

Liquidations on Hyperliquid follow the mark price, not the last trade.¹ The mark price is a median of three inputs, one of which comes from the perpetual prices on other large exchanges.³ A cascade on Hyperliquid's own book alone moves only part of that median, so the mark price can lag a fast local move. When the whole market moves together, all inputs move and the mark follows.

How a cascade shows up in the data

Liquidation data shows a cascade from several angles at once:

• Liquidation totals by hour and side. On our liquidations page, a cascade appears as a spike of one side (long liquidations in a fall, short liquidations in a rise), often on several venues in the same hour.
• Largest single liquidations. The largest liquidations list shows the individual forced closes, with venue, side and size. A cascade often leaves many large entries within minutes of each other.
• Fading heatmap bands. On the liquidation heatmap of a coin, the bands the price ran through disappear from one column to the next.
• Open interest drops. Each forced close reduces open interest, so a cascade usually comes with a sharp fall in open interest during the move.

Limits of the data

• Exchange totals are a lower bound. Binance publishes at most the latest liquidation per symbol and second on its public stream, so in a cascade many forced orders are never reported; we cover Bybit for its top 100 symbols.⁴ Reported cascade sizes on centralised exchanges are therefore always smaller than the real ones.
• Tracked wallets first on Hyperliquid. In real time we count the Hyperliquid liquidations we can confirm from the fills of the wallets we track, and a partial liquidation of a tracked position looks like a reduced position. Liquidations of every other account come in later, from the hourly files of Hyperliquid's official archive; until an hour is imported, its Hyperliquid total covers tracked wallets only.
• Hourly sums smooth the shape. A cascade that lasts a few minutes is one bar in an hourly chart. The list of largest liquidations keeps the exact times.

A cascade is a description of what happened, not a pattern that repeats on schedule. Liquidation levels close to the price say where forced orders would appear; they do not say whether the price will get there.