Innovative Finance ISA Crowdfunding Exchange Booms
11th July 2017
Crowd2Fund’s Exchange, a secondary market for trading crowdfunded investments, was first launched 18 months ago. It is benefiting from a significant increase in activity in line with the platform’s exponential growth this year.
The Exchange is attracting increasing investment to the platform due to the ease with which investors can sell their investments to others. Additionally, investors are able to diversify and manage their risk through trading existing loans, either selling their own or buying loans at prices based on market demand. The Exchange’s activity is an unmoderated, free market approach, with no intervention from Crowd2Fund.
In the quarter ending on the 31st of May 2017, the total value of all investments transacted through the Exchange increased by 452% from the previous quarter. The Crowd2Fund investor community now trades hundreds of thousands of pounds worth of investments weekly. Until now, crowdfunding had been an illiquid market where investors had been unable to access their cash; the Exchange has changed that.
Crowd2Fund’s primary market is currently trading at an estimated 9.3% APR, with the secondary market trading at an average of 6.5% APR before fees and bad debt. All returns are tax free if they are held within the Innovative Finance ISA.
How The Exchange Works
The Exchange allows crowdfunded investments to be resold to other investors. The sale price of the investment listed is defined by the seller; this can be impacted by how quickly the seller wants to sell their investment and market demand at the time of sale. Buyers can easily browse opportunities listed on the Exchange, review the loans’ historic performance and make purchases.
Buyers should be aware that the risk of investments defaulting is still a possibility and that the APR offered may not be representative of the level of risk of the opportunity they are buying. As such, we strongly suggest investors still look at each opportunity and do their usual due diligence.
Investors Can Make Profits And Losses When Trading
Many in the Crowd2Fund investor community are generating returns by selling investments to others at a premium. This is made possible due to the demand of opportunities currently exceeding the availability of campaigns fundraising on the main market.
Here is an example of how the Exchange pricing works:
Let’s say an investor lent £1000 to a business, which could potentially be worth £1200 once it matures, and would like access to their capital early: they can trade this investment on the Exchange. If market demand is high, they can sell it at a lower price than the full value of the loan, or a higher price should market demand be low.
So if the investor sells the loan on the Exchange for £1,080, they would make £80 from the sale and the buyer would still make £120 after the loan matures. The price difference is shown as original APR and offered APR. If market demand is weak, then these investments can also be sold at a loss, should investors need to access their capital quickly.
Alongside diversification, another reason an investor may pay a premium on an investment is that the Exchange may give them some assurance of the credit worthiness of businesses. This is because items listed on the Exchange show their historic performance on repayments.
It’s Social Finance
The Exchange has a social news feed which provides a real-time view of all platform activity. Members of the community are able to see which investments are being traded, watch campaigns on the main market, and follow other investors’ trades.
Being able to monitor the frequency of trades and who is buying and selling them acts as an additional layer of purchasing power to investors, as well as adding another layer of due diligence and transparency, which compliments investors’ ability to further scrutinise investment opportunities.
The 452% quarter on quarter increase in activity on the Exchange is mirrored by the increase in demand on the primary market, which increased by 390% in the same period. This is another reason for the increase in transaction volume through the Exchange which has now reached hundreds of thousands of pounds per week.
Chris Hancock, Crowd2Fund CEO said:
“The Exchange offers a brilliant mechanic to attract investment to Entrepreneurs and fast growing businesses, as investors feel more comfortable that they can access their capital if needed.
Over the next few months we will be enabling our Artificial Intelligence system, ‘Smart-Invest’, to access Exchange investments, introducing a new dynamic to investing and allowing users to automatically make investments on the Exchange”
Past performance and forecasts are not reliable indicators of future results. Your capital invested is not covered for compensation in the event of a loss by the FSCS. Tax treatment will depend on the individual circumstances and may be subject to change. Please see our Risk section before making an investment decision.