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Post by profunder on Sept 13, 2015 1:16:18 GMT
This forum is full of negative comments about recent changes, but I see it different. I think the problem is the rates are just not stable enough. I think this makes it problematic for both lenders and borrowers, people want a fast and efficient way to borrow and lend with predictable rates.
Of course other platforms exist where people can be more sofisticated, however RateSetter seem to make no secret they want the simplest possible platform but the need the ability to set rates as its in their name and DNA.
I believe this all can be resolved with one small change. I know RateSetter won't like it but it's all about keeping the markets liquid. The markets now are not liquid and nor can this appear to be resolved on the current model.
But first here is the problem. Borrowers want to generally Get matched and move on. Borrowers clearly are not in the business of setting rates for large volumes and negotiating over a timeframe like some lenders.
So I believe the solution is to allow lenders to sell their loans by placing a buy order in the market. Crucially with absolutely minimal fees and now stupid limitations of how much interest can be earned based on time held. This will have two effects, firstly people will trade the rates. If I lend at 5.9% and sell back at 5.8% on the 5 year, there will be hugh buy and sell walls, in excess of £1,000,000 each side. The reason is each time I turn over the money I make a decent percentage. This will cause a long queue at very stable pricing.
Secondly once a 5 year loan was been open for 2 years it should be bought back in the 3 year market. This leads to the second benefit, rate convergence. Rates across all markets will get closer. Take for example if the 5 year is 6% and 3 year is 5%, if I hold a loan for 2 years I not only get 6% interest, I likely make an extra decent profit on sale. Therefore overall return will be around 7%. Thus inevitably lowers the borrowers costs, but keeps the returns just as high for investors looking to keep money tied up for long term and dispose of when they become short term.
Overall I believe allowing this trading on the rates would:
(1) increase liquidity to over £1m at current market prices
(2) stop the volatility on prices
(3) reduce rates, but not returns for people willing to dispose of loans and reinvest as they age.
In turn that would:
(1) attract more borrowers as rates are stable even for large loans
(2) make it easier for high street investors to put there money in and just take the rate.
(3) ultimately make RateSetter more money.
I think RateSetter are scared of allowing flippers to make money, but they haven't considered the benefit of this flipping competition. Increased liquidity and rate stabilisation.
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Post by Deleted on Sept 13, 2015 17:33:15 GMT
Sounds like an interesting idea ... I think most would be in favour of a secondary market with the added flexibility it will give to lenders, would be keen to hear the views of ratesetter regarding your idea and a secondary market in general.
Secondary markets seem to work well on the likes of Funding circle and Savings Stream
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jonah
Member of DD Central
Posts: 2,031
Likes: 1,113
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Post by jonah on Sept 13, 2015 18:47:28 GMT
RS is, from my perspective, aiming at a KISS approach, looking for people wanting a bit better return but not to have to have the time to dedicate to a site which, for example, FC needs. They are moving towards simple processes. They are likely wanting to get a wave of new ISA money in April. Whilst the more experienced folk around this site (which I don't include myself!) might want a tweak or an option etc, I really can't see RS doing anything for the next 12 months apart from streamlining the customer experience. That said, I'm just a normal customer.... So what do I know?  I believe kev did mention on another thread about changes happening in September and I don't think we have seen anything yet. |
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Post by moneyball on Sept 13, 2015 20:13:01 GMT
This forum is full of negative comments about recent changes, but I see it different. I think the problem is the rates are just not stable enough. I think this makes it problematic for both lenders and borrowers, people want a fast and efficient way to borrow and lend with predictable rates. Of course other platforms exist where people can be more sofisticated, however RateSetter seem to make no secret they want the simplest possible platform but the need the ability to set rates as its in their name and DNA. I believe this all can be resolved with one small change. I know RateSetter won't like it but it's all about keeping the markets liquid. The markets now are not liquid and nor can this appear to be resolved on the current model. But first here is the problem. Borrowers want to generally Get matched and move on. Borrowers clearly are not in the business of setting rates for large volumes and negotiating over a timeframe like some lenders. So I believe the solution is to allow lenders to sell their loans by placing a buy order in the market. Crucially with absolutely minimal fees and now stupid limitations of how much interest can be earned based on time held. This will have two effects, firstly people will trade the rates. If I lend at 5.9% and sell back at 5.8% on the 5 year, there will be hugh buy and sell walls, in excess of £1,000,000 each side. The reason is each time I turn over the money I make a decent percentage. This will cause a long queue at very stable pricing. Secondly once a 5 year loan was been open for 2 years it should be bought back in the 3 year market. This leads to the second benefit, rate convergence. Rates across all markets will get closer. Take for example if the 5 year is 6% and 3 year is 5%, if I hold a loan for 2 years I not only get 6% interest, I likely make an extra decent profit on sale. Therefore overall return will be around 7%. Thus inevitably lowers the borrowers costs, but keeps the returns just as high for investors looking to keep money tied up for long term and dispose of when they become short term. Overall I believe allowing this trading on the rates would: (1) increase liquidity to over £1m at current market prices (2) stop the volatility on prices (3) reduce rates, but not returns for people willing to dispose of loans and reinvest as they age. In turn that would: (1) attract more borrowers as rates are stable even for large loans (2) make it easier for high street investors to put there money in and just take the rate. (3) ultimately make RateSetter more money. I think RateSetter are scared of allowing flippers to make money, but they haven't considered the benefit of this flipping competition. Increased liquidity and rate stabilisation.
For someone who has traded Betfair for nearly 15 years, such a move by RS would be warmly welcomed by myself..... but I can see why its not going to happen.
In fact, you can already do this. Unfortunately, to do so would mean any potential profit would be hit (wiped out) by the fees/spreads that RS charge to borrowers.
To put your idea into practice, it would mean RS using you're already loaned out book as collateral to form the other side of your position (which isn't 100% guaranteed cleared funds). It would also require RS to charge its fees to you on the net difference between both trades. I.e. severely hitting their income/profit. Increased trade would result but more then likely, not enough to offset this loss of income to RS. Not to mention the vastly increased workloads on their IT etc.
That's before we get into the commercial message/vibe that RS currently put out to all customers being hijacked by traders.
Betfair circa 2009 brought in the dreaded "Premium Charge." Believe me, that was an astronomical move compared to FC latest moves. And is what RS would eventually resort too under your proposal (as much as I would personally like it! )
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spiral
Member of DD Central
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Likes: 456
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Post by spiral on Sept 14, 2015 10:23:29 GMT
I have often wondered why they don't do something to encourage liquidity.
Cashbacks do this but are short term and probably quite costly.
Personally, I don't know why they don't pay interest on money on market equivalent to that of an instant savings account.
They could be quite clever with it by even decreasing the rate, the further away from MR you are using the formula interest rate = MR+current instant access rate - YR
E.g. MR=6% current instant access rate = 1.5% YR = 6.5% = 6+1.5-6.5 =1% interest per annum for money at 6.5.
If you offer at 7% your IR will be 0.5%. If you offer at 5.5% you IR will be 2% (which in truth would be 0 because it would be lent on the same day) .
On the face of it it appears costly but in truth, the low YR rates which pay the highest "on offer" interest would not hang around for too long.
I would suggest that the rates are fixed at the time of placing the order i.e. they don't move in line with MR on a daily basis and the offer gets closed when liquidity exceeds say 7 days expected disbursals and reopened when it drops below 4 days
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Post by contangoandcash on Sept 15, 2015 14:41:46 GMT
Another Betfair veteran of 14 years here, I'd also welcome this, but for all the reasons moneyball said, highly unlikely.
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am
Posts: 1,495
Likes: 601
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Post by am on Sept 15, 2015 15:00:51 GMT
My understand is that RS is deliberately set up to reduce liquidity. Thus instead of selling 5 year loans at a profit after two years you're charged, if not an arm and a leg, a finger and a pinky to get your money out. I believe that this is to discourage cash outflows.
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LittleBear
Member of DD Central
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Post by LittleBear on Sept 15, 2015 15:18:23 GMT
Spooky - I've been active on Betfair for 14 years too.
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Post by profunder on Sept 15, 2015 21:34:35 GMT
Yep Im on betfair too from the old days. Interesting to see how so many people here have betfair in common.
I guess both betfair and p2p share a lot in common, it's all peer to peer and both can be profitable.
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Post by fiatlender on Sept 15, 2015 21:48:06 GMT
Another old Betfairian here too. Did it for about 10 years, quit in 2011 after being pro for about 5 years. Got totally fed up with the bots and Premium charge, so took my money and ran.
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Post by moneyball on Sept 15, 2015 21:52:35 GMT
Another old Betfairian here too. Did it for about 10 years, quit in 2011 after being pro for about 5 years. Got totally fed up with the bots and Premium charge, so took my money and ran.
Never really got bothered by the bots, especially as many of them were poorly coded by people experimenting etc, in fact they sometimes gave up extra opportunities.
You're right though, the golden time for BF was roughly 2004 (when broadband was largely rolled out and BF's own servers drastically improved) through to 2009 (when the premium charge was introduced.)
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Post by fiatlender on Sept 15, 2015 22:03:29 GMT
Never really got bothered by the bots, especially as many of them were poorly coded by people experimenting etc, in fact they sometimes gave up extra opportunities.
You're right though, the golden time for BF was roughly 2004 (when broadband was largely rolled out and BF's own servers drastically improved) through to 2009 (when the premium charge was introduced.)
Agree about the bots and opportunities, took 5 figures off them on one occasion  The early days were the best, you could not fail to make huge sums by being on your game and monitoring the forum to see what people were upto.
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Post by contangoandcash on Sept 15, 2015 23:29:25 GMT
I'm still full time on BF, and well suffice to say I don't mind the bots much some are good, others not so. I suppose we shouldn't be surprised to find quite a few people into the same sorts of things! |
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bigfoot12
Member of DD Central
Posts: 1,817
Likes: 816
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Post by bigfoot12 on Sept 16, 2015 6:53:56 GMT
My understand is that RS is deliberately set up to reduce liquidity. Thus instead of selling 5 year loans at a profit after two years you're charged, if not an arm and a leg, a finger and a pinky to get your money out. I believe that this is to discourage cash outflows. I think that they might be doing this to discourage cash outflows, but if their exit fees were sensible I would have more money on the platform. If they were small enough to allow trading (with an API?) I would have at least double on the platform. So I would move money off the platform from time to time, but my average balance would be much higher. Also used Betfair from the beginning, though not as much as I used. I do like bots.
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