Lend Academy Network Forum

Lending Club Discussion => Investors - LC => Topic started by: DanB on September 11, 2013, 02:32:39 AM

Title: New FOLIO Trading Agreement
Post by: DanB on September 11, 2013, 02:32:39 AM
Any attorneys among us want to comment on whether there is anything of importance in the new Folio "Trading Agreement" notice/advisory? (see below)

"Purchasing Notes on the Trading Platform is inherently risky as the asking price is set by the seller, and may be priced higher than the remaining return expected on the Note.

Purchasing Notes with a negative Yield to Maturity or with large markups are almost certain to return less money than the price you will pay, producing negative returns on your investment.

There are various reasons a current Note holder chooses to list a Note for sale. Often Note holders are simply looking to liquidate their holdings; they may place Notes for sale at or slightly below par value (i.e., below the remaining interest and principal remaining on the Note). However, other sellers may be seeking to profit on their sales. They may price Note above its par value, either in the hopes that a buyer will view the Notes as very valuable or because they may hope to profit from a lack of buyer's insight. They may hope that the buyer will not realize that the price has been set so high, or they may hope that a buyer will not be paying close attention to the price set.

Please be wary of Notes that are priced at high premiums.

In addition, the original interest rate set by Lending Club was based on the borrower's credit attributes at the time the loan was requested and may no longer represent the underlying risk of the Note. While the underlying risk may have increased, the interest rate has not and may not offset the risk a buyer undertakes when purchasing a Note.

Since the Note was issued the borrower's attributes have most likely changed, among these could include changes to credit score, income, employment, credit utilization, debt-to-income, and many other important factors. You should buy a Note only if you understand and are comfortable with these risks".
Title: Re: New FOLIO Trading Agreement
Post by: core on September 11, 2013, 02:40:32 AM
Wow you actually have to click Accept on that too, in order to get to Folio.  Fortunately just a one-time deal, unlike Prosper where you have to do it each and every time.

Anything of importance?  No.  In fact it's sad that they had to actually say these things.

They left out a couple things:
1. Don't talk to strangers
2. Look both ways before crossing the street

Title: Re: New FOLIO Trading Agreement
Post by: rawraw on September 11, 2013, 05:46:32 AM
Wow you actually have to click Accept on that too, in order to get to Folio.  Fortunately just a one-time deal, unlike Prosper where you have to do it each and every time.

Anything of importance?  No.  In fact it's sad that they had to actually say these things.

They left out a couple things:
1. Don't talk to strangers
2. Look both ways before crossing the street
We both know you are worried this will cut into your FolioFN antics! :) 
Title: Re: New FOLIO Trading Agreement
Post by: core on September 11, 2013, 06:50:10 AM
We both know you are worried this will cut into your FolioFN antics! :)

Most of my customers are so foolishly addicted to losing money, it will have no effect.

You know, they could have made the entire disclaimer shorter and easier for the financially challenged to read by wording it simply:

Be careful about overpaying for notes.  There are slimy snakes on here who would like nothing better than to take your money and see you make a pouty face.

Yeah welcome to trading.  It ain't any different anywhere else.
Title: Re: New FOLIO Trading Agreement
Post by: New Jersey Guy on September 11, 2013, 08:40:09 AM
"Any attorneys among us want to comment on whether there is anything of importance in the new Folio "Trading Agreement" notice/advisory? (see below)"

Anybody who needs a lawyer to understand that shouldn't be trading here to begin with.

With the Folio section of IR being down, I can't get an exact percentage of how many notes are listed for higher than 5% markup.  I can say, it's very, very high, with most of those probably being owned by Core!

Core....out of curiosity, how many notes do you currently have up for sale on Folio.
Title: Re: New FOLIO Trading Agreement
Post by: core on September 11, 2013, 09:31:20 AM
With the Folio section of IR being down, I can't get an exact percentage of how many notes are listed for higher than 5% markup. 

Approximately 53.7% of the notes currently listed are for higher than 5% markup.  And if you go up to 10% markup you still catch nearly 29% of all notes.  So yeah, very high.

I can say, it's very, very high, with most of those probably being owned by Core!
Core....out of curiosity, how many notes do you currently have up for sale on Folio.

Not hardly.  I currently have just 831 notes up for sale.  Trade smarter, not harder!

Back to that new disclaimer, the way I read it (grammar aside) they're saying that if you buy a negative YTM note it's "almost certain" that your return will be negative.  Why "almost"?  Surely when they wrote that they weren't assuming that you would turn around and sell it right away to a greater fool, which is the only way.  I'm wondering if I'm missing something and if there's any possible other way you'd end up with anything besides the predicted loss.  Some obscure chain of events perhaps.
Title: Re: New FOLIO Trading Agreement
Post by: yojoakak on September 11, 2013, 10:18:55 AM
Back to that new disclaimer, the way I read it (grammar aside) they're saying that if you buy a negative YTM note it's "almost certain" that your return will be negative.  Why "almost"?  Surely when they wrote that they weren't assuming that you would turn around and sell it right away to a greater fool, which is the only way.  I'm wondering if I'm missing something and if there's any possible other way you'd end up with anything besides the predicted loss.  Some obscure chain of events perhaps.

I haven't done the math but since YTM is based on original maturity would it be possible to buy a slightly negative YTM 3-year note on a payment plan that extends the maturity past the original maturity date and end up with a slightly positive return?
Title: Re: New FOLIO Trading Agreement
Post by: Joleran on September 11, 2013, 10:20:57 AM
Some obscure chain of events perhaps.

It goes late, they pay late fees and bring it current.  Wash, rinse, repeat, and buy a lottery ticket to capitalize on your unbelievable luck?
Title: Re: New FOLIO Trading Agreement
Post by: core on September 11, 2013, 10:32:05 AM
Yes, both excellent scenarios there.  Goodie, now we have a couple good arguments ready in case they consider disallowing negative YTM listings.  I was going to ask for wagers on when that day will come.
Title: Re: New FOLIO Trading Agreement
Post by: DanB on September 11, 2013, 11:09:31 AM
"Any attorneys among us want to comment on whether there is anything of importance in the new Folio "Trading Agreement" notice/advisory? (see below)"

Anybody who needs a lawyer to understand that shouldn't be trading here to begin with.

With the Folio section of IR being down, I can't get an exact percentage of how many notes are listed for higher than 5% markup.  I can say, it's very, very high, with most of those probably being owned by Core!

Core....out of curiosity, how many notes do you currently have up for sale on Folio.


Thank you, for that staggeringly obvious statement. However it may not just be a matter of "understanding that", as you so eloquently stated. I'm more interested in hearing a less flippant legal response concerning how this addendum may or may not affect future LC actions pertaining to, among other things, the reversal of trades. Of course I'm not a lawyer, but since everyone is throwing there 2 cents in, let me suggest 2 possible short term scenarios. 

Scenario 1 is that this "advisory" type statement may be nothing more than pre-IPO CYA & ultimately of no real consequence to anyone.

Scenario 2: I could also speculate that this is an indication of additional intent on LCs part that has already & will continue to have some very real consequences for the small number of individuals who have shown notable ingenuity & skill, enabling them to enjoy some nose bleed inducing return numbers to date..............But some of whom perhaps have lacked the wisdom, imo, to speak a little softer publicly (or not at all) about their exploits, thereby creating the conditions for inevitable countermeasures. 
Title: Re: New FOLIO Trading Agreement
Post by: New Jersey Guy on September 11, 2013, 11:34:46 AM
".....thereby creating the conditions for inevitable countermeasures. "

Such as what?
The most obvious and easiest solution would be to put a markup cap on Folio listings.

Otherwise, what?  Throw people out because they are making money?
Title: Re: New FOLIO Trading Agreement
Post by: GS on September 11, 2013, 01:48:50 PM
Not a lawyer here, but it sounds to me more a like a statement to protect the sellers, not the buyers.  I wouldn't worry about it cutting into the note flipping side of the platform, if anything, they seem to be saying "tough luck" to the people who overpay.
Title: Re: New FOLIO Trading Agreement
Post by: cfb on September 11, 2013, 03:45:56 PM
Not a lawyer either, but its a statement to protect lending club and nobody else.  Its the standard CYA for "What?  I lost money?!?  Nobody warned me!!!1!  I'll sue!"

Its also why they stopped saying that nobody with 800+ notes lost money, and why they cut the expected returns by ~3%.  CYA.
Title: Re: New FOLIO Trading Agreement
Post by: rawraw on September 11, 2013, 04:01:08 PM
No idea why the yelling or whispering your Folio returns would matter.  It's not like LC doesn't have the data at its disposal . . .
Title: Re: New FOLIO Trading Agreement
Post by: DanB on September 11, 2013, 05:42:57 PM
No idea why the yelling or whispering your Folio returns would matter.  It's not like LC doesn't have the data at its disposal . . .

I've always been into cars & racing etc. One of the more stupid things we did when we were young & stupid was a couple of "donuts" right in front of the police station, before speeding away. Never got chased, never got in trouble. I'm guessing the result would have been a bit different if we had done it on officers appreciation day, filmed the whole thing & then posted it on youtube.
Title: Re: New FOLIO Trading Agreement
Post by: GS on September 11, 2013, 06:09:15 PM
Not a lawyer either, but its a statement to protect lending club and nobody else.  Its the standard CYA for "What?  I lost money?!?  Nobody warned me!!!1!  I'll sue!"

Good point, LC's primary concern is protecting LC.  What I meant is that LC *might* be getting calls from these dopes who have purchased notes with negative YTMs and asking them to undo the trade.  This statement protects the seller in that LC can point to the buyer's user agreement that he/she understood that people need to use their brains when they purchase notes.
Title: Re: New FOLIO Trading Agreement
Post by: Fred on September 11, 2013, 06:39:51 PM
No idea why the yelling or whispering your Folio returns would matter.  It's not like LC doesn't have the data at its disposal . . .

Hmm, I now wonder where the "line" is between LC and FOLIOfn  -- as far as data is concerned.

Once a note has been sold to a FOLIOfn investor, ideally LC should not care who the new owner of the note is.  During monthly payment time, LC should just say to FOLIOfn something like "please pay x dollars to whoever owns this note."

Separation of concerns like this should allow non-LC FOLIOfn investors to buy LC notes from FOLIOfn.
Title: Re: New FOLIO Trading Agreement
Post by: core on September 11, 2013, 07:57:08 PM
Scenario 2: I could also speculate that this is an indication of additional intent on LCs part that has already & will continue to have some very real consequences for the small number of individuals who have shown notable ingenuity & skill, enabling them to enjoy some nose bleed inducing return numbers to date..............But some of whom perhaps have lacked the wisdom, imo, to speak a little softer publicly (or not at all) about their exploits, thereby creating the conditions for inevitable countermeasures.

Ugh, this again.  All roads lead to Rome.  Ok Dan, you win for now.  My sig is on holiday.

I am not sure what "inevitable countermeasures" you are referring to.  They could disallow negative YTM prices, and this would not surprise me if it happened one day.  Maybe one day soon.  This would decrease traders' profits by a small amount but would not solve this "nosebleed returns" problem of which you speak.  I don't even understand why you're calling it a problem.

Like NJG said, what do you expect, LC to start kicking people out just because they are making xx% and that's simply more than one person should have?  Tell me this:  If what you're doing is on the level, why should they even care how much you are making? 

Folio makes a great deal off of trading commissions.  I know I pay them a substantial amount each month, way more that any of my brokers would get even if I was day trading.  I imagine that LendingClub gets to keep a healthy percentage of this rather than handing it all to Folio.  And LC keeps collecting the 1% loan servicing fee just as before.  They make more money the more times a note is traded.

Good point, LC's primary concern is protecting LC.  What I meant is that LC *might* be getting calls from these dopes who have purchased notes with negative YTMs and asking them to undo the trade.

They are almost certainly having to field calls from individuals, both on the buying and selling side, and I have a feeling this is what this is all about.  I have seen enough posts on other forums from people saying they have called in requesting trade cancellations which leads me to believe it happens quite a bit.  This is definitely a CYA thing IMHO.

Hmm, I now wonder where the "line" is between LC and FOLIOfn  -- as far as data is concerned.

I do not believe Folio is involved in any way, shape, or form.  Besides putting their name on it because they are registered with the appropriate agencies.  Look who runs both sites.  (Well it's not even 2 sites.)  Possibly the funds really do move during those 24 hours just to make it legal.  But I think that's where it ends.  If you call Folio and ask them to cancel a trade they will tell you they have nothing to do with it and have to call LC.  In all my dealings with LC I got the distinct impression that LC handles everything start to finish in the trading process.

Title: Re: New FOLIO Trading Agreement
Post by: DanB on September 12, 2013, 01:35:46 PM
Scenario 2: I could also speculate that this is an indication of additional intent on LCs part that has already & will continue to have some very real consequences for the small number of individuals who have shown notable ingenuity & skill, enabling them to enjoy some nose bleed inducing return numbers to date..............But some of whom perhaps have lacked the wisdom, imo, to speak a little softer publicly (or not at all) about their exploits, thereby creating the conditions for inevitable countermeasures.

Ugh, this again.  All roads lead to Rome.  Ok Dan, you win for now.  My sig is on holiday.

I am not sure what "inevitable countermeasures" you are referring to.  They could disallow negative YTM prices, and this would not surprise me if it happened one day.  Maybe one day soon.  This would decrease traders' profits by a small amount but would not solve this "nosebleed returns" problem of which you speak.  I don't even understand why you're calling it a problem.

Like NJG said, what do you expect, LC to start kicking people out just because they are making xx% and that's simply more than one person should have?  Tell me this:  If what you're doing is on the level, why should they even care how much you are making?

Folio makes a great deal off of trading commissions.  I know I pay them a substantial amount each month, way more that any of my brokers would get even if I was day trading.  I imagine that LendingClub gets to keep a healthy percentage of this rather than handing it all to Folio.  And LC keeps collecting the 1% loan servicing fee just as before.  They make more money the more times a note is traded.

Good point, LC's primary concern is protecting LC.  What I meant is that LC *might* be getting calls from these dopes who have purchased notes with negative YTMs and asking them to undo the trade.

They are almost certainly having to field calls from individuals, both on the buying and selling side, and I have a feeling this is what this is all about.  I have seen enough posts on other forums from people saying they have called in requesting trade cancellations which leads me to believe it happens quite a bit.  This is definitely a CYA thing IMHO.

Hmm, I now wonder where the "line" is between LC and FOLIOfn  -- as far as data is concerned.

I do not believe Folio is involved in any way, shape, or form.  Besides putting their name on it because they are registered with the appropriate agencies.  Look who runs both sites.  (Well it's not even 2 sites.)  Possibly the funds really do move during those 24 hours just to make it legal.  But I think that's where it ends.  If you call Folio and ask them to cancel a trade they will tell you they have nothing to do with it and have to call LC.  In all my dealings with LC I got the distinct impression that LC handles everything start to finish in the trading process.



I suspect they don't care how much most of us are making. But then most of us are not in their face. There are some people who are. They definitely do care about perception & the only way that it is perceived that you can make those types of 1000% returns is by taking money off of a lot of other people................perhaps the type of people NJG referred to when he so eloquently made the case for the other side by saying that anyone needing a lawyer to understand the addendum shouldn't be trading here to begin with.

Whether one is doing something "on the level" is not only a matter of staying within the rules but also a matter of perception as well. You don't think perception matters for a company heading to IPO ,whose official raison d'etre was to " bring together investors and creditworthy borrowers so that both can benefit financially".  Oh but wait, someone is making 1000% off of the back of a whole bunch of other investors. But why should we care right? Yeah, that'll play well! 

Why are there monthly news reports of how much wealth the top 1% possess? Did they make their money "on the level" & why should anyone care? Well the general population cares enough for them to write the stories. What do you think is the general perception of how they accumulated their wealth? Do you think it matters that no one has proof that it was done by nefarious means ? Come on.

But why are we even discussing this when you've pretty much acknowledged the wisdom of my remarks already by deleting your signature line?
Title: Re: New FOLIO Trading Agreement
Post by: core on September 12, 2013, 02:06:16 PM
I have certainly not acknowledged the wisdom of anyone's remarks.  I do, however, know better than to argue with high intelligence individuals who see things which do not exist.  It is a volatile combination.  Any offered "wisdom" can turn into a self fulfilling prophecy.

Title: Re: New FOLIO Trading Agreement
Post by: jinglander on October 11, 2013, 07:27:22 AM
Scenario 2: I could also speculate that this is an indication of additional intent on LCs part that has already & will continue to have some very real consequences for the small number of individuals who have shown notable ingenuity & skill, enabling them to enjoy some nose bleed inducing return numbers to date..............But some of whom perhaps have lacked the wisdom, imo, to speak a little softer publicly (or not at all) about their exploits, thereby creating the conditions for inevitable countermeasures.

Ugh, this again.  All roads lead to Rome.  Ok Dan, you win for now.  My sig is on holiday.

I am not sure what "inevitable countermeasures" you are referring to.  They could disallow negative YTM prices, and this would not surprise me if it happened one day.  Maybe one day soon.  This would decrease traders' profits by a small amount but would not solve this "nosebleed returns" problem of which you speak.  I don't even understand why you're calling it a problem.

Like NJG said, what do you expect, LC to start kicking people out just because they are making xx% and that's simply more than one person should have?  Tell me this:  If what you're doing is on the level, why should they even care how much you are making? 

Folio makes a great deal off of trading commissions.  I know I pay them a substantial amount each month, way more that any of my brokers would get even if I was day trading.  I imagine that LendingClub gets to keep a healthy percentage of this rather than handing it all to Folio.  And LC keeps collecting the 1% loan servicing fee just as before.  They make more money the more times a note is traded.

Good point, LC's primary concern is protecting LC.  What I meant is that LC *might* be getting calls from these dopes who have purchased notes with negative YTMs and asking them to undo the trade.

They are almost certainly having to field calls from individuals, both on the buying and selling side, and I have a feeling this is what this is all about.  I have seen enough posts on other forums from people saying they have called in requesting trade cancellations which leads me to believe it happens quite a bit.  This is definitely a CYA thing IMHO.

Hmm, I now wonder where the "line" is between LC and FOLIOfn  -- as far as data is concerned.

I do not believe Folio is involved in any way, shape, or form.  Besides putting their name on it because they are registered with the appropriate agencies.  Look who runs both sites.  (Well it's not even 2 sites.)  Possibly the funds really do move during those 24 hours just to make it legal.  But I think that's where it ends.  If you call Folio and ask them to cancel a trade they will tell you they have nothing to do with it and have to call LC.  In all my dealings with LC I got the distinct impression that LC handles everything start to finish in the trading process.


Core,

Why do you have so many notes listed.  Whats your strategy
Title: Re: New FOLIO Trading Agreement
Post by: core on October 11, 2013, 08:45:32 AM
Core,
Why do you have so many notes listed.

Because that's just how many notes I ended up with that particular week.  I post for sale 100% of the notes that I buy.  Why, you ask?  Because I want to sell them.  Any note that I keep around for months is just an opportunity for someone to default on me.

Whats your strategy

That's my secret sauce.  Preservative free and 100% vegetarian.  Not for sale to minors (or anyone else for that matter).   

However since you're new here, I'll be nice and at least give you some kind of answer:  My strategy is to make money using any and all slithery means at my disposal.  I currently buy notes and then sell them to people who are willing to pay a premium due to time constraints or sheer foolishness.  That is not a constant though, and there's only a finite supply of fools out there.  Every change that LC makes can close one door but it may at the same time open many other paths to profit.
Title: Re: New FOLIO Trading Agreement
Post by: Joleran on October 11, 2013, 11:11:00 AM
Core, it's fairly apparent that you're generally working on a high volume method, but I find it surprising you're able to identify so many notes for sale that can stand a price increase of over 1% to balance the sales fee on your side and still flip quickly. 

Thoughts:
FolioFn is comprised of two main streams of notes: fast moving notes that people using automated tools snap up very quickly, and slow moving notes that sit around.  You can't be targeting the fast moving notes because you couldn't get the volume you need, and you can't be targeting the slow moving notes because they're already moving slowly.  You therefore seem to have some ability to take a loan that would sit around and turn it into a note that sells fairly quickly while making a profit.  There's no obvious logical way this could happen, so one of the following is most likely true:

There are a ton of totally irrational buyers that buy marked up notes they wouldn't buy when they were less marked up
You're better and faster on the trigger to grab the quick moving notes than I think is possible at your volume
You have a personal algorithm to pick out slow moving notes that will sell reliably but slowly at a higher price
You have some way of marketing your notes as good buys to the public
Title: Re: New FOLIO Trading Agreement
Post by: rawraw on October 11, 2013, 11:25:56 AM
Core, it's fairly apparent that you're generally working on a high volume method, but I find it surprising you're able to identify so many notes for sale that can stand a price increase of over 1% to balance the sales fee on your side and still flip quickly. 

Thoughts:
FolioFn is comprised of two main streams of notes: fast moving notes that people using automated tools snap up very quickly, and slow moving notes that sit around.  You can't be targeting the fast moving notes because you couldn't get the volume you need, and you can't be targeting the slow moving notes because they're already moving slowly.  You therefore seem to have some ability to take a loan that would sit around and turn it into a note that sells fairly quickly while making a profit.  There's no obvious logical way this could happen, so one of the following is most likely true:

There are a ton of totally irrational buyers that buy marked up notes they wouldn't buy when they were less marked up
You're better and faster on the trigger to grab the quick moving notes than I think is possible at your volume
You have a personal algorithm to pick out slow moving notes that will sell reliably but slowly at a higher price
You have some way of marketing your notes as good buys to the public
Core is a shady computer programmer with possible connections to the Russian mafia.  So I'd say its probably the algorithm to grab quick moving notes.
Title: Re: New FOLIO Trading Agreement
Post by: core on October 11, 2013, 12:08:07 PM
You have some way of marketing your notes as good buys to the public

I assure you, this is next on my list when I have the time.  Probably not in the manner you had in mind, though.

All in all, that was a very logical and well thought out post, Joleran.  There are some flaws with some of your arguments though.  Obviously I'm not going to correct you. ;)

A couple other possibilities you missed:
... and probably many more.  Whenever money is changing hands, there's always a way to make money from it.  Even moreso once you decide not to be limited to the way you're "supposed" to play the game.

Core is a shady computer programmer with possible connections to the Russian mafia.

Shady, you betcha.  But I would have nothing to do with those communists that have nukes aimed at Nebraska.  If the Russians are ever allowed to invest on LC we are all done for.   If there's anything the Russians are good at, it's finding exploits.