hendragon
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Post by hendragon on Dec 21, 2016 11:18:50 GMT
I would like to pose a few questions regarding liquidity
Is too much liquidity just as bad as too little. Loans sell out almost immediately and SMs have people or bots waiting to get loans as soon as they are posted?
Is there a Goldilocks point for Sms and how liquid they are?
I suspect that these questions have been asked in relation to individual platforms but it might be good to have some general pointers.
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cooling_dude
Bye Bye's for the PPI
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Post by cooling_dude on Dec 21, 2016 11:39:15 GMT
All my opinion based on observations over the last year...
Liquidity is great for the existing investors who have invested their pot because they can sell quickly if they need to (and if there is an FS type SM, at less of a discount), not so good for those looking to invest (especially BHs). Also, as time goes by and loans repay, it's harder to reinvest, so will also affect the existing investors. However, a liquid marketplace is a sign the platform is performing well and has the confidence of its investors. The big downside if the liquidity continues for an extended period, is the platform is likely to lower its rates, or worse, take its eye off the ball
A less liquid marketplace is great if you are looking to invest a pot of money, or looking to diversify. Furthermore, platforms struggling to fill loans will often offer higher rates and bonuses; FS are big fans with the BHs at the moment for this reason. However, it will be harder to sell away your loan part, and you have to ask yourself why is the marketplace is liquid - many times it is simply stuck in a catch 22 situation due to the above (Investors don't invest because the marketplace is not liquid, and as such, the marketplace remains static/ low liquidity), but sometimes there are underlying problems that keep large groups of investors away.
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SteveT
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Post by SteveT on Dec 21, 2016 11:44:15 GMT
It's a trade-off. The only way to sustain an effective balance of supply and demand is to permit variable SM pricing via premiums / discounts (as per ABL, FS, ReBS where there is always SM availability). However a large proportion of (less active?) lenders say they dislike the complexity of variable pricing and clamour for the simplicity of the par-only SMs (as per SS, where availability can rapidly flip from feast to famine, and MT). When the majority of lenders distrust variable pricing SMs, this obviously impacts the overall scale of SM trading on those platforms.
FC's SM is effectively a hybrid of the two. Offers at par (or discount) tend to disappear immediately because they are available to Autobid. Offers at a premium can only be bought by manual lenders, balancing supply and demand.
AC's SM has a variation on the theme, permitting offers at a discount but not at a premium. Therefore there can be balanced trading in less popular and/or chequered loans, but offers of everything else are taken up immediately via the shrapnelator.
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archie
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Post by archie on Dec 21, 2016 12:37:21 GMT
I like par SMs with no rolled up interest. I'm a big fan of the KISS principle.  |
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hendragon
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Post by hendragon on Dec 21, 2016 12:43:31 GMT
I had not considered fully the implication that liquidity would not only affect if people would invest but also how much they might invest. Dude your point about investor confidence is well made, but if it is anything like the stockmarket, confidence can be volatile and transient. It also has the possibilty it could be a self-fulfilling prophecy.
I wonder if investor confidence is part of ther life-cycle of a platform. When they begin and things are going well we all love them, when the first few defaults occur they can very quickly fall off the Christmas card list.
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Post by GSV3MIaC on Dec 21, 2016 13:23:15 GMT
I'm with SteveT on this. Too much and too little are both bad .. one stops people getting in, the other stops them getting out. The absolute worst of both worlds is rapid and unpredictable flipping between the two states, which works like a lobster pot .. you're stuck on the doorstep for weeks, with no openings, then one appears and you pile in, only to find a week later that you can't noway nohow get back out. That definitely puts a crimp in investor confidence. I can well handle premium/discount sales (although some versions are more opaque than others), and it works fine AS LONG AS you have some allocation system (or captcha or whatever) to discourage ticket-touting bots. Fine by me if people want to buy too much (when it is cheap, and NOBODY ELSE WANTS IT) and sell at a markup (when supplies are scarce), which help to balance supply/demand. Letting someone buy all of it (or even 20%) when everyone wants some, only for them to resell at a profit, is not good for anyone long term. |
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bigfoot12
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Post by bigfoot12 on Dec 21, 2016 14:17:04 GMT
Is too much liquidity just as bad as too little. My instinct (and investopedia agrees) is that liquidity refers to buying and selling. It might be very easy to sell spare tickets for a Led Zeppelin comeback concert, but you wouldn't call them liquid. So I would say that liquidity is good, however, Saving Stream is not liquid because it is too hard to buy.
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toffeeboy
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Post by toffeeboy on Jan 9, 2017 17:35:44 GMT
Is too much liquidity just as bad as too little. My instinct (and investopedia agrees) is that liquidity refers to buying and selling. It might be very easy to sell spare tickets for a Led Zeppelin comeback concert, but you wouldn't call them liquid. So I would say that liquidity is good, however, Saving Stream is not liquid because it is too hard to buy. Have to say I disagree, I think that liquidity refers to only how long something takes to sell. I don't think the inability to buy something makes its less liquid because the liquidity of something is how long it will take you to sell something, if something sells before you get chance to buy it every time it appears on the market then it is very liquid, the fact that you are never able to buy it proves rather than disproves this point.
Obviously there has to be some sold every now and then to prove the liquidity of a market.
Personally I think that liquidity is a good thing and as has been mentioned proves confidence in the site/company.
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Post by dualinvestor on Jan 9, 2017 17:52:35 GMT
My instinct (and investopedia agrees) is that liquidity refers to buying and selling. It might be very easy to sell spare tickets for a Led Zeppelin comeback concert, but you wouldn't call them liquid. So I would say that liquidity is good, however, Saving Stream is not liquid because it is too hard to buy. Have to say I disagree, I think that liquidity refers to only how long something takes to sell. I don't think the inability to buy something makes its less liquid because the liquidity of something is how long it will take you to sell something, if something sells before you get chance to buy it every time it appears on the market then it is very liquid, the fact that you are never able to buy it proves rather than disproves this point.
Obviously there has to be some sold every now and then to prove the liquidity of a market.
Personally I think that liquidity is a good thing and as has been mentioned proves confidence in the site/company.
A very long time ago I was taught that liquidity meant how long it took to turn something into cash; hence why in a Balance Sheet the listings were in declining order inverse to liquidity, Fixed Assets and Current Assets and within the latter, usually, stock, debtors and cash at bank. Therefore I would tend to agree with the thread title on some platforms there is hyper liquidity. Market liquidity is a diferent concept.
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