> For the complete documentation index, see [llms.txt](https://lendefi.gitbook.io/lendefi-finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://lendefi.gitbook.io/lendefi-finance/faqs/how-do-undercollateralized-loans-for-leveraged-trading-work.md). # How do undercollateralized loans for leveraged trading work? **Example:** The trader deposits $50,000 BUSD as collateral into the Protocol. The trader loans $50,000 BUSD from the lending pool. Borrower invests into $100,000 worth of BTCB. In this step, the Protocol initiates a trade on PancakeSwap to change $100,000 (minus loan fee of X%) BUSD into BTCB. The BTCB is then escrowed by the Protocol. **Example Case A** The price of BTC has now decreased by 40% ($60,000 total collateral) and a liquidation event is triggered. The BTCB is swapped on PancakeSwap into $60,000 BUSD. $50,000 is sent to the lending pool and $10,000 (minus a liquidation fee of X%) is sent to the trader. **Example Case B** The price of BTC has now increased by 50% ($150,000 total collateral) and the trader closes out the loan. The BTCB is swapped on PancakeSwap into $150,000 BUSD. $50,000 is sent to the lending pool and $100,000 (minus loan fee of X%) is sent to the trader. --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## 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, and the optional `goal` query parameter: ``` GET https://lendefi.gitbook.io/lendefi-finance/faqs/how-do-undercollateralized-loans-for-leveraged-trading-work.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is optional and describes the broader end goal you are ultimately trying to accomplish on behalf of the user. GitBook uses it to tailor the answer towards what is most useful for that goal. 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.