# Liquidity Pools and Adding Liquidity

[**PancakeSwap pools** ](https://exchange.pancakeswap.finance/#/pool)allow you to provide liquidity by adding your tokens to liquidity pools or “LPs”.

When you add your token to a liquidity pool (LP), you will receive FLIP tokens (PancakeSwap’s version of liquidity provider tokens). 

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As an example, if you deposited $CAKE and $BNB into a liquidity pool, you would receive CAKE-BNB FLIP tokens. 

The number of FLIP 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.<br>

![](https://lh6.googleusercontent.com/2kVPpX68tw74VevgCTEa-Z7Ca0_KGCWJiTOh43A6OROXGPUI1QnoF9bXp2kpSRTrtCUNPvI5UPbrCAuG4oyNEVDkOJp_PsE7pWrCu6PJjrymjEfYgMdsdfogaMt35lffRoRWsbqb)

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)

It’s not all bad for liquidity providers as you will also be given a reward in the form of trading fees. Whenever someone trades PancakeSwap, the trader pays a 0.2% fee, of which 0.17% is added to the liquidity pool of the swap pair they traded on.&#x20;

For example:

* There are 10 FLIP tokens representing 10 CAKE and 10 BNB tokens.
* 1 FLIP 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 FLIP 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 FLIP tokens to work whipping up some fresh yield on the [CAKE farms (here)](https://pancakeswap.finance/), while still earning your 0.17% trading fee reward.&#x20;