sl75
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Post by sl75 on Sept 25, 2014 11:01:43 GMT
Guys, I'm staring to doubt my own understanding of how it works. But I know from Customer Service that some lenders do confuse the Market Rate with Your Rate (the floor). If you use YR to set a floor money can get stranded if unlent in the day and the markets drop irrespective of MR functionality. If you use the YR to set a floor you do need to be relatively active and take a look every few days, especially if the market is dropping. I suspect the way the MR has been rising recently, not much money has been stranded long term on realistic rates. With rates presently in excess of 6%, I don't understand why there should be a difference between using Market Rate and using Your Rate with a floor of (say) 5.5%. Either way, the system will initially try to match it at a market rate in excess of 6%, significantly higher than the 5.5% floor. Suppose rates drop to 5.9%. Why would a "market rate" offer be handled any differently to a "your rate" offer with a 5.5% floor set? In essence, I'd expect "market rate" to work equivalently to setting a "your rate" of 0.0% (if that's possible, didn't check). Edit: and for the record, I see diversification at RS as being primarily about ensuring I don't get a huge lump sum to re-invest if a borrower settles early after rates have dropped (the more likely scenario), with a secondary consideration towards avoiding excessive exposure to a provision fund that may prove inadequate - even if the provision fund does prove inadequate, it seems to me highly unlikely it would be inadequate by a large enough margin to cause substantial loss of capital [as I recall, capital will be prioritised over interest if the provision fund ever looks likely to be inadequate - was about to double check the details, but the link attached to "For more information about the principles of the Provision Fund, click here." seems to be broken] Edit2: having now found the correct link: www.ratesetter.com/Lend/ProvisionFund - it seems that diversification for the purpose of risk exposure is in fact entirely pointless at RateSetter due to the way they've changed (or clarified) their intended actions should the fund be depleted. Quoting from that page:
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markr
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Post by markr on Sept 25, 2014 11:35:22 GMT
With rates presently in excess of 6%, I don't understand why there should be a difference between using Market Rate and using Your Rate with a floor of (say) 5.5%. Indeed so, but there is a difference, although the problem is with YR not MR. MR works as you'd expect, and doesn't leave money stranded (I guess in a rapidly falling market it could be effectively stranded as it chases an ever falling rate lower). YR, however, doesn't, if the *current* market rate is higher than your floor, the funds are placed at the current market rate but then left there. It is necessary to log in reasonably often to check and release stuck offers even if the current market rate is well above your floor.
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sl75
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Post by sl75 on Sept 25, 2014 11:46:22 GMT
Indeed so, but there is a difference, although the problem is with YR not MR. MR works as you'd expect, and doesn't leave money stranded (I guess in a rapidly falling market it could be effectively stranded as it chases an ever falling rate lower). YR, however, doesn't, if the *current* market rate is higher than your floor, the funds are placed at the current market rate but then left there. It is necessary to log in reasonably often to check and release stuck offers even if the current market rate is well above your floor. Ok. I'd not kept up to speed on that (I'd always done manual top-ups before, but am now just trying YR for the first time). Did previous discussions indicate when RS intended to fix this bug? I also find it difficult to understand why MR would be implemented internally any differently to a YR of 0.0% (or null), but there's presumably a good reason for RS to have made this distinction.
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markr
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Post by markr on Sept 25, 2014 11:58:04 GMT
Ok. I'd not kept up to speed on that (I'd always done manual top-ups before, but am now just trying YR for the first time). Did previous discussions indicate when RS intended to fix this bug? Therein lies the problem, I think, RS wouldn't even agree that it is a bug. I agree with you though, RS would actually have to do work to create this behaviour (over the simple MR is YR with floor=0%), so either it was intended to work this way or it's a bizarre cock up.
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warn
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Post by warn on Sept 26, 2014 10:06:41 GMT
... either it was intended to work this way or it's a bizarre cock up. Cock-up, almost certainly. When I raised this with RS, the initial response was "no, you're wrong, your money wont get stranded if you set a floor unless Market Rate falls below that floor". Finally they admitted the current behaviour, Kev going so far as to claim there were good reasons for it, though didn't (couldn't?) explain them. What is certain is that the system works in this counter-intuitive way, and the documentation says it works the way we believe it should. RS seem totally uninterested in changing either.
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Post by westonkevRS on Sept 26, 2014 21:15:56 GMT
It's because in the early days it was designed to help people catch higher rates, rather than act as a floor.
I personally would prefer it if the YR worked as a floor only, and that money was lent at the MR as long as it is above the YR. And I think this is how most lenders think it works, and indeed it does if the MR is flat, rises or your money goes within the day. As it usually does, so no-one notices. The "stranded" situation is when MR drops and a YR is set, which cause the lender MR to be fixed because with YR the MR is a fixed on the day it is placed.
I'll be honest I thought it worked as a floor only and didn't know money could be stranded. I was educated by the forum lender members!
However (isn't there always one?), in the old days YR functionality meant that money was lent at the YR (irrespective of MR). It was designed to catch a higher rate on spikes, rather than to stop lending if MR dropped - catch a peak rather than a floor. But then customers rightly complained they could have got the MR if it was higher. So the functionality was changed to have one-day only MR in-built functionality so lenders got the MR rather than a YR if set lower.
I (and I think the lenders on this forum) want a floor lender rate rather than a spike catcher. This would either require the removal of the YR spike-catcher to track the MR down, or a new variable to configure.
This is a debate I'm trying to get on the table within RateSetter. But other priorities have taken hold, like the new web page you all love so much.... My advice for now, use MR without YR.. If you want a floor you need to check the rates every day or so. If you want to catch spikes, set the YR floor.
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gnasher
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Post by gnasher on Sept 30, 2014 4:40:06 GMT
Normally I do not use MR, because my observation lead me to suspect that it is highly sub optimal. To illustrate I have just seen this happen and I still have the full market rate windows open. Not long ago it was like this:
6.5% £95.9k 292 £123.0k 6.4% £21.7k 33 £27.1k 6.3% £1.8k 9 £5.4k 6.2% £3,642.95 26 £3,642.95
With a lot of money having gone at 6.4%. Now any sane person would place an order at 6.4 or 6.5 in this market.
Then suddenly at approx 05:20 UK time it changes to this:
6.5% £95.1k 301 £201.2k 6.4% £24.8k 51 £106.0k 6.3% £6.3k 39 £81.2k 6.2% £74,875.89 516 £74,875.89
i.e. 490 orders placed at 6.2% for approx £71,000. That could only be a batch of system generated MR orders.
That looks highly sub optimal from a lenders perspective to me. Indeed it looks like RS are actively trying to flatten spikes. Am I missing something?
Edit after the post below from Westonkev:
OK many apologies, that did not come across as I intended. I am absolutely certain that RS are not actively manipulating the market. I guess what I was trying to say was that the algorithm for placing auto invest market orders looks like it is giving some sub optimal results on occasions for lenders who use it, and has the effect of smoothing the market rate over a period.
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Post by westonkevRS on Sept 30, 2014 7:38:17 GMT
I don't mind the facts, but can we quit with the "active manipulation" accusations.
An active lender might be able to beat Market Rate with active lending to catch daily spikes, setting their own rate based on the days activity and forecasts. It might be true that keeping a close eye could get the extra 0.1% or whatever a day. But the Market Rate (for me) gets the average over the longer term. The summary calculation is on the web site as follows:
"The Market Rate is automatically calculated in each market every day. The rate is set at the level of the Lowest Lender Order, after discounting a small percentage (typically set at 1%) of all the offers by volume. This is done to ensure that the Market Rate is not adversely affected by outlying orders. The Lender’s repayment is then submitted to the market as an order."
That's it, the computer does the rest. There is nobody actively doing anything; other than our lenders. So either please stop accusations of impropriety, or hang out on a conspiracy theory web site.
Kevin.
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spiral
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Post by spiral on Sept 30, 2014 8:01:48 GMT
i.e. 490 orders placed at 6.2% for approx £71,000. That could only be a batch of system generated MR orders. I agree, that this does appear to be what has occurred. The problem is despite several requests across various threads, the transparancy of how the MR is calculated is still unknown to us. The last response I remember seeing from WestonKev was that the calculation excluded a not insignificant amount at the front of the queue. Seeing what you've shown makes me wonder if the calculation initially excludes YR offers. Let's see if I can explain. Excluding the "not insignificant sum" at the front, using your figures, I would expect MR to be at about 6.4 maybe 6.5%. Let's say in the reinvestment options there are 50K of repayments with a YR of 6.2% 10K at 6.3 and 10K at 6.1, what should happen is that because MR is > YR, the offers go out at MR but supposing the software places all orders at their YR before calculating MR. Suddenly the calulation for MR would be much lower and there would only be the need to bump up a few YR offers. So your first figures showed: 6.5% £95.9k 292 £123.0k 6.4% £21.7k 33 £27.1k 6.3% £1.8k 9 £5.4k 6.2% £3,642.95 26 £3,642.95 Add my imaginary repayments at YR 6.5% £95.9k 6.4% £21.7k 6.3% £10.8k (10K repayments) 6.2% £53,642 (50K repayments) 6.1 10K (10K repayments) Suddenly recalculating MR would probably give you 6.2% so only the 10K with reinvesyment set at 6.1 would be altered to 6.2. This method could even have sveral iterations so if in my example the MR initially came out at 6.3%, the 6.1 offers may get first moved to 6.2 thus increasing the 6.2 figure and potentially lowering MR further. Ultimately this scenario becomes win win as some people will still have their offers go in at > MR (and no one <YR) and RS keep rates lower. Of course this is just me trying to explain what might of occurred based on my limited understanding of how MR is calculated. This scenario would only ever be visible at times of low funds as usually, there would be ample buffering from existing funds and lenders would not have seen what occurred quick enough to readjust their YR setting before this morning repayment run. I for example have my YR settimg generally at 0.1 higher than the bulk of funds and all my offers went out yesterday so any adjustment I may feel is needed to that rate has already missed this morning's run. Edit: Just seen WestonKevs post above, the outlyers are considered to be typically 1% but the theory still remains the same.
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Post by closetotheedge on Sept 30, 2014 11:23:57 GMT
As someone with nothing better to do I have been reading this thread and watching the way the RATESETTER system allocates my repayments which are set at MR back into the 5 year market. My repayments are currently about £1000 a month and over the last few weeks I think I could have got 0.1% more in just under half the instances when I had a repayment going back in. This means according to my rather weak maths (O level grade B at second attempt) I would have beaten my MR setting by about £6000 * 0.1% so £6 per year. As I say, I really have little to do once I have given up on the crossword, but I do not have so little to do that I am willing to watch my repayments that closely. Perhaps I am missing something here?
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markr
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Post by markr on Sept 30, 2014 12:01:35 GMT
6.5% £95.9k 292 £123.0k 6.4% £21.7k 33 £27.1k 6.3% £1.8k 9 £5.4k 6.2% £3,642.95 26 £3,642.95 Presumably, there was less than £360k (or £540k depending on how the algorithm works) in total on the market, so that the "discounting 1%" that Kev refers to still didn't raise the rate above 6.2, so that's where MR was set for that morning's returned funds. Placing an order for 6.5% and to a lesser extent 6.4% at this time would be risky (even ignoring the automatic MR money) because I think manual re-investors will wake up and start putting their money in before the RS credit team arrive at work and start approving loans, so there's a definite risk of getting stuck. And that's what market rate money must never do, so the algorithm is doing a reasonable, if maybe not optimal, thing.
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oldgrumpy
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Post by oldgrumpy on Sept 30, 2014 12:32:24 GMT
Yep. My 6.4% stash from last night may still go out this afternoon - if not I'm dropping a point to beat tomorrow's first of the month influx! edit one minute later - it's all rushing out now! + two mins - all gone!! looks like I might have got the 6.5% I balked at last night
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Post by wildlife2 on Sept 30, 2014 12:55:55 GMT
Just got 6.4% in 5 yr within half an hour of depositing the money
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spiral
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Post by spiral on Sept 30, 2014 16:49:59 GMT
Just got 6.4% in 5 yr within half an hour of depositing the money Which proves the point that 6.2% was not the true market rate but more in my 6.4 - 6.5% stated this morning. To be honest, I'm quite surprised that only 1% of money is deemed to be outliers. Until very recently the 5yr market consistently had <£1m on offer. This would mean that 1 person depositing £10K could determine the MR. This almost certainly didn't happen because of the previous discussions whereby a large sum (£50K I think) was getting placed at 3to 4 points below the minimum on Sunday evenings. This would have triggered the MR to have been 3 to 4 points below the rates people would have expected (unless all gone by the morning) so somehow the "usually 1%" in this instance would have been higher.
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gnasher
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Post by gnasher on Sept 30, 2014 18:08:51 GMT
Exactly!
Last night I put 2 orders on at 6.4, and one speculative one at 6.5. They did not go overnight and looked like they could be stranded after this mornings 6.2 auto invest wedge went in. However the 6.4s went this afternoon, and the 6.5 this evening. So all that 6.2 auto invest "MR" money could certainly have gone for .2% or indeed .3% higher if it had been placed manually. We can all make our own minds up as to how important that is.
OK no algorithm will be perfect. Normally I do not use it but from time to time if I am travelling/busy for a period I turn it on, so it is a featue that I am happy to have available and to use when needed. The only point I would make is that it cannot be claimed to always give optimum results, at worst only .1% less than the manual bidders could get. Perhaps the current market conditions are unusual, and it normally does better on behalf of the lenders that use it.
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