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
Rate	Date	ID	Total	Per Borrower	Loan
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
Rate	Date	ID	Total	Per Borrower	Loan
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.