Full vs Partial Liquidation on Polymarket: How It Works
Full liquidation closes your entire leveraged position when your loan-to-value ratio crosses the liquidation threshold - typically 85% on platforms offering Polymarket leverage. Unlike partial liquidation, which sells just enough collateral to restore margin health, full liquidation exits your whole trade, applies a liquidator fee (commonly 5%), and returns nothing to you. This matters because a 15-16% adverse price move at 5x leverage can wipe out your entire position rather than trimming it gradually.
Understanding which liquidation model your platform uses is critical before opening any leveraged prediction market trade. The difference determines whether you face a total position loss or a recoverable margin call.
What Is the Difference Between Full and Partial Liquidation?
The distinction comes down to how much of your position gets closed when you breach the liquidation threshold.
Partial liquidation works incrementally. The protocol sells only enough of your collateral to bring your loan-to-value ratio back below the safe threshold. If you posted 1,000 shares as collateral and borrowed USDC, a partial liquidation might sell 200-300 shares - just enough to restore your margin buffer. You keep the remaining position and can continue trading.
Full liquidation closes everything. Once triggered, your entire collateral gets sold to repay the loan plus liquidation fees. There is no surplus returned to you, regardless of how much your collateral exceeds the debt after the sale.
| Liquidation Type | Position Closed | Surplus Returned | Recovery Possible |
|---|---|---|---|
| Partial | Only what is needed | Yes | Yes, automatically |
| Full | 100% of position | No | No, must re-enter |
Most DeFi lending protocols (Aave, Compound) use partial liquidation. Leveraged trading platforms for prediction markets typically use full liquidation - the same model Binance Futures employs.
Why Do Prediction Market Platforms Use Full Liquidation?
Prediction market shares behave differently than standard crypto collateral. Their binary nature - worth $1 at resolution or $0 - creates unique risks that partial liquidation handles poorly.
Consider a share trading at $0.70 that suddenly gaps to $0.30 on breaking news. A partial liquidation system would attempt to sell 30-40% of your position to restore margin. But in fast-moving prediction markets with thin order books, that sale itself can crash the price further, triggering another partial liquidation, then another - a cascade that ultimately liquidates everything anyway while creating maximum slippage.
Full liquidation avoids this death spiral by executing one clean exit. It also protects lenders more reliably. When collateral can gap to zero at market resolution, partial liquidation leaves the protocol exposed to bad debt if the remaining position becomes worthless before another liquidation triggers.
Platforms like PredMart implement full liquidation with a Binance-Futures-style model specifically because prediction market dynamics demand it.
How Does the Mark Price Determine Your Liquidation?
Your liquidation is not triggered by the last traded price or the mid-price you see on screen. It is triggered by the mark price - a manipulation-resistant metric designed to prevent artificial liquidations.
The mark price represents the depth-weighted average price to sell approximately $1,000 worth of shares into the current order book. This calculation matters because:
- It reflects actual exit liquidity - not theoretical prices nobody will fill
- Large orders cannot spike it - a single large trade does not move your liquidation threshold
- It accounts for thin books - markets with poor depth show less favorable mark prices
In practice, a market might show a mid-price of $0.65, but if the buy-side order book is thin, your mark price could be $0.58. That 7-cent difference significantly affects when liquidation triggers.
This is why thin sports and crypto markets require extra caution. PredMart's depth gate can limit available leverage on illiquid markets precisely because the mark price diverges more from the displayed price.
What Happens During a Full Liquidation? A Worked Example
Let us trace through an actual liquidation scenario with numbers.
Setup: - You deposit $200 to buy shares at $0.50 - At 5x leverage, you control $1,000 worth of shares (2,000 shares) - You borrowed $800 USDC from the lending pool - Entry fee (~5% on a mid-priced contract) already deducted from your deposit
Your position: - Collateral value: 2,000 shares at $0.50 = $1,000 - Loan: $800 - LTV: 80% (at maximum)
The market moves against you:
| Share Price | Collateral Value | LTV | Status |
|---|---|---|---|
| $0.50 | $1,000 | 80% | Healthy |
| $0.47 | $940 | 85.1% | Liquidation triggered |
| $0.45 | $900 | 88.9% | Would have been worse |
At $0.47 - a 6% price drop - your LTV crosses 85% and liquidation executes.
What happens: 1. All 2,000 shares are sold at the mark price (let us say $0.46 after slippage) 2. Sale proceeds: $920 3. Loan repayment: $800 4. Liquidator fee (5%): $40 5. Remaining for you: $0 (920 - 800 - 40 = $80, but full liquidation returns no surplus)
Your original $200 deposit is gone. Had this been partial liquidation, you might have retained a smaller position. With full liquidation, you must start over.
How Much Room Do You Have Before Liquidation?
The buffer between your maximum LTV (80%) and liquidation threshold (85%) determines your margin of safety.
At different leverage levels, here is how much the price can move against you:
| Leverage | Price Drop to Liquidation | Example at $0.60 Entry |
|---|---|---|
| 2x | ~40% | Price falls to $0.36 |
| 3x | ~25% | Price falls to $0.45 |
| 4x | ~18% | Price falls to $0.49 |
| 5x | ~15-16% | Price falls to $0.51 |
Key insight: The 5% buffer (80% to 85%) sounds small, but leverage amplifies it. At 5x, that 5% buffer translates to roughly 15-16% of price movement before liquidation. At 2x, you have approximately 40% room.
This is why conservative traders use 2-3x leverage on volatile prediction markets, saving 5x for high-conviction plays on liquid markets with clear resolution timelines.
For detailed liquidation mechanics, see the liquidation documentation.
How Can You Avoid Full Liquidation?
Since full liquidation offers no partial recovery, prevention is your only defense.
Monitor your LTV actively. Do not set leveraged positions and forget them. Prediction markets move on news cycles - a single tweet can gap prices 20% before you check your phone.
Use lower leverage on thin markets. Sports props and niche crypto markets often have sparse order books. The mark price on these can diverge significantly from displayed prices, triggering liquidation sooner than expected.
Understand the entry fee impact. Risk-based entry fees (up to ~7% on cheap/volatile contracts) reduce your effective collateral from the start. A 5% entry fee means you are already operating with less buffer than your deposit suggests.
Close positions before high-volatility events. If you are leveraged on an election market and results start coming in, your mark price can move faster than you can react. Exit before the resolution window if you cannot monitor continuously.
Add collateral early. If your LTV is climbing toward 80%, adding funds before you hit the danger zone is far cheaper than losing everything to liquidation plus the 5% fee.
FAQ
Can I add collateral to prevent liquidation once it starts? No. Once your LTV crosses the 85% threshold and liquidation triggers, the process executes automatically. You must add collateral before reaching the threshold - monitoring your position as it approaches 80% LTV is critical. There is no grace period or margin call warning that pauses execution.
Do I lose my entire deposit in a full liquidation? Effectively yes. While the sale of your collateral may exceed your loan plus the liquidator fee, full liquidation does not return any surplus to you. This differs from partial liquidation systems where excess collateral remains in your account. Plan position sizes assuming full deposit loss is possible.
Why is the liquidation threshold 85% instead of 100%? The 5% buffer between maximum LTV (80%) and liquidation (85%) ensures lenders are repaid even if prices gap or slippage occurs during the liquidation sale. Without this buffer, rapid price drops could leave loans undercollateralized before liquidation completes, creating bad debt for the lending pool.
Does liquidation happen at the price I see on screen? No. Liquidation triggers and executes based on the mark price - the depth-weighted average to sell roughly $1,000 into the order book. On thin markets, this can be significantly worse than the displayed mid-price. Always check actual order book depth, not just the headline price.
Is full liquidation more expensive than partial liquidation? In most scenarios, yes. You lose your entire position plus the 5% liquidator fee, with no surplus returned. Partial liquidation would only sell enough to restore margin health, preserving the rest of your position. However, full liquidation avoids cascade scenarios where multiple partial liquidations ultimately cost more through repeated fees and slippage.
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