31st December 2019
The Exchange has attracted 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. All returns are also tax-free if they are held within the Innovative Finance ISA.
The Exchange’s activity is an unmoderated, free-market approach, with no intervention from Crowd2Fund.
Since the launch of the Exchange at the start of 2016, the total value of all investments transacted through the Exchange is £4.2m. The Crowd2Fund investor community now trades tens of thousands of pounds worth of investments weekly. With such an active market, investors are now more able to access their cash, when previously crowdfunding was a completely illiquid form of investing.
How The Exchange Works
The Exchange allows crowdfunded investments to be resold to other investors. To sell an investment an investor will simply click "View my investments" from their dashboard, select the individual investment they want to trade and click the sell button. 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, remaining balance and repayments 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 investors in the Crowd2Fund investor community are generating returns by selling investments to others at a premium. This is made possible due to the demand for opportunities currently exceeding the availability of campaigns fundraising on the main market.
Here is an example of how the Exchange pricing works:
If an investor lent £1000 to a business, which could potentially be worth £1200 once it matures, but 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.
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 the remaining balance and the offered Buy Price. 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 for an investment is that the Exchange can give them extra assurance of the creditworthiness of businesses. This is because items listed on the Exchange show their historic performance on repayments. If a business has been making their repayments reliably, it gives an extra boost in confidence.
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 complements investors’ ability to further scrutinise investment opportunities.
Since the start of 2016 more than 33,000 loan parts, cumulatively worth more than £4.2m have been sold on the Exchange. The average sale time is 12.4 days, sold at an average value of 0.61 per cent below the original target return. Smaller loans which are closer to the average investment amount sell more quickly.
Chris Hancock, Crowd2Fund CEO said: “It’s a really important dynamic to have a secondary market – it’s about diversification. If there aren’t lots of live opportunities on the primary market, you can deploy your funds into loans in the secondary market and create a well-diversified portfolio”.
Capital at risk.
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.