# Liquidity Pools

![](https://539685153-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2F-MHREX7DHcljbY5IkjgJ-2459025041%2Fuploads%2Fgit-blob-66370803ab6a02f4c70b42d08044a076552a10f2%2Fliquidity-header.png?alt=media)

When you add your token to a Liquidity Pool you will receive Liquidity Provider (LP) tokens and share in the fees.

## LP Tokens

As an example, if you deposited **CAKE** and **BNB** into a Liquidity Pool, you'd receive **CAKE-BNB LP** tokens.

The number of LP tokens you receive represents your portion of the CAKE-BNB Liquidity Pool.

You can also redeem your funds at any time by removing your liquidity.

![](https://539685153-files.gitbook.io/~/files/v0/b/gitbook-legacy-files/o/assets%2F-MHREX7DHcljbY5IkjgJ%2F-MYddUj7mrAzIDJSC820%2F-MYdezVThmhitREO6z6V%2FScreenshot%202021-04-19%20at%206.27.22%20PM.png?alt=media\&token=568dc33f-6a83-436b-a956-f54aacb5ceff)

## Liquidity Providers earn trading fees

Providing liquidity gives you a reward in the form of trading fees when people use your liquidity pool.

Whenever someone trades on PancakeSwap, the trader pays a 0.25% fee, **of which 0.17%** is added to the Liquidity Pool of the swap pair they traded on.

For example:

* There are 10 LP tokens representing 10 CAKE and 10 BNB tokens.
* 1 LP token = 1 CAKE + 1 BNB
* Someone trades 10 CAKE for 10 BNB.
* Someone else trades 10 BNB for 10 CAKE.
* The CAKE/BNB liquidity pool now has 10.017 CAKE and 10.017 BNB.
* Each LP token is now worth 1.00017 CAKE + 1.00017 BNB.

To make being a liquidity provider even more worth your while, you can also put your LP tokens to work whipping up some fresh yield on the [CAKE Farms](https://pancakeswap.finance/farms), while still earning your 0.17% trading fee reward.

## Impermanent Loss

Providing liquidity is not without risk, as you may be exposed to impermanent loss.

\
[“Simply put, impermanent loss is the difference between holding tokens in an AMM and holding them in your wallet.” - Nate Hindman](https://blog.bancor.network/beginners-guide-to-getting-rekt-by-impermanent-loss-7c9510cb2f22)


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