> 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.