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Easteregging

You may read on the Zopa forums about "easteregging".  So what exactly is easteregging ?

As a lender on Zopa my aim was to try to maximise the rate of interest I could achieve.  The default setting on Zopa is that you only lend 10 per lending offer, in order to maximise diversification, and average out the risk.  Lets consider the following hypothetical market on Zopa.  Typically on Zopa lenders usually offer funds in 10 chunks but lets assume that each of these lenders actually represents a group of real lenders.

Rate Lending Loan
Date ID Total Per
Borrower
6.3% 2/1/2012 mike 500 100 1300
6.3% 1/1/2012 leon 500 100 1200
6.2% 4/1/2012 kevin 500 100 1100
6.2% 3/1/2012 james 500 100 1000
6.2% 2/1/2012 ian 500 100 900
6.2% 1/1/2012 helen 500 100 800
6.1% 4/1/2012 george 500 100 700
6.1% 3/1/2012 frances 500 100 600
6.1% 2/1/2012 evie 500 100 500
6.1% 1/1/2012 david 500 100 400
6.0% 3/1/2012 charlott 500 100 300
6.0% 2/1/2012 brian 500 100 200
6.0% 1/1/2012 alex 500 100 100

The loans are ordered by rate and then by offer date.  If a borrower were to require a loan of say 1000 then the lenders "alex" to "james" would be included in the loan.  The lenders "kevin" and those above him would fail to make the loan as their rates are too high or they offered their money later than others.

Lets assume that I want to enter this market.  Lets also assume that I'm happy lending my funds at 6.0% and I would want to limit 30 per borrower.  This could be achieved by setting the maximum per borrower to be 30 or have three separate lending offers with a maximum of 10 per borrower.

Rate Lending Loan
Date ID Total Per
Borrower
6.3% 2/1/2012 mike 500 100 1330
6.3% 1/1/2012 leon 500 100 1230
6.2% 1/2/2012 easteregg 50 10 1130
6.2% 4/1/2012 kevin 500 100 1120
6.2% 3/1/2012 james 500 100 1020
6.2% 2/1/2012 ian 500 100 920
6.2% 1/1/2012 helen 500 100 820
6.1% 1/2/2012 easteregg 50 10 720
6.1% 4/1/2012 george 500 100 710
6.1% 3/1/2012 frances 500 100 610
6.1% 2/1/2012 evie 500 100 510
6.1% 1/1/2012 david 500 100 410
6.0% 1/2/2012 easteregg 50 10 310
6.0% 3/1/2012 charlott 500 100 300
6.0% 2/1/2012 brian 500 100 200
6.0% 1/1/2012 alex 500 100 100

In the example above, as the size of the loan increases, so does the average interest rate I would receive, and the amount of money lent. By limiting the amount of money in each lending offer, you can assign spare funds to the higher offers as they become depleted over time.

This method was named "easteregging" by the Zopa community as I managed to fill up the Zopa market spreadsheet by having offers at every 0.1% rate increment up to 20%.

With this method, you have some knowledge on what the maximum rates in the market are, and therefore you can top up the higher rate lending offers that are being drawn upon.  This method can also be used on RateSetter, Funding Circle and YES-secure and the last two also have the advantage that you can sell your loan parts, so you can still maximise your diversification and achieve the higher rates.