Newbie Qn re start times and bid amounts on live auction.

I see no reason why larger investors wouldn't increase their pre-funding so that after allocation they get something near to what they want.  In fact, it may be more likely, because they get very little -- relative to their desires -- of sub-£1M loans.  Since everyone can pre-fund up to their account size, there's plenty of scope to overbid.  If someone pre-funds their maximum, then if the allocation factor is 20% they'd get an amount equal to 20% of their account size.  That's not much diversification, so I wouldn't expect anyone actually to pre-fund that much.  (With a sub-£10k account, pre-funding the maximum would result in an even bigger diversification problem.)

I suppose one reason BH's might not pre-fund excessively is that if they mis-guess the allocation factor they'd end up with a lot more of the loan than they really want.  If someone wants £200 and gets £800, they probably can be confident of being able to sell the excess £600 before SS become too upset with their negative balance.  Someone who wants £25k and gets £100k might find the SM doesn't absorb their excess so easily.  And particularly so if the reason for the over-allocation was that investors didn't like the loan for some reason, or had their collective appetite for SS loans sated.  Then again if the SM freezes up those with deep pockets might find it easier to come up with an extra £75k than a small lender could find an extra £600, so perhaps this 'logic' is flawed.

The critical question is whether the SM is likely to swing from famine to feast gradually or quickly.  I'd guess the latter, but that really is just a guess.  We'll just have to wait and see what happens.  Maybe we'll get a clue shortly, if the Watford loans go live this week.

I think that in arriving at this conclusion you are making the assumption that the particular lender is not getting much new money into SS and that you are calculating the diversification based only on what one holds in SS rather than all the P2P platforms. Am I correct in thinking this?

I wouldn't think SS would be happy with an investor just offering parts for sale.  I expect that what they really want is for the parts to be sold and for the negative balance to be cleared.  And where there might be no stated 'penalty' for excessive negative balances, I wouldn't recommend planning on that continuing.  If SS feel that an individual is abusing their 'buy now, pay later' privilege, I expect SS could withdraw that facility very quickly and insist that investor has cash available in their account before any future purchases would be allowed.

I accept the general principle, but if the SM became less liquid, it might well be because a large new loan has been released, and it could be that loan isn't fully snapped up upon release.  At that point it might not be so easy to find buyers for the excess because if everyone received their full pre-funding request there should be very little unsatisfied demand.  And possibly quite the opposite, as anyone who didn't foresee the 100% allocation and pre-funded more than they really wanted also will be trying to sell their excess.  The only thing that might save the investors trying to sell is the priority the SS system gives to investors' parts over underwriters' parts -- presuming they still operate that policy..