Dynamic Bidding

On 18th March 2011 we added a new method of bidding to run along side the existing type of bid.

We call it "Dynamic Bidding" in which a lender can can place a bid with a 'floor' as the lowest rate he/she will accept and select an opening bid of up to 5% above that.

If the opening bid is displaced by a rival bid, the computer will automatically rebid at a lower rate until either your new bid is accepted or your floor is reached.

The effect of this is to reward an early bid and a lower floor as the bid which is most likely to achieve a premium over the lender's floor.

Late bidders seeking to just undercut the highest bid now face a more complex situation, because they have to consider the effect of any dynamic rebidding on their offer. It turns out that even late bidders will probably be better off using a dynamic bid rather than a fixed bid, though they can always take the chance.

When would it be smart to place a fixed bid?

You might place a high fixed bid for a large proportion of a loan to act as an underwriter, in the knowledge that if you are left holding some of the loan, it is at a high premium rate. You might also place a fixed bid at your genuine floor in the knowledge that if you are knocked out there should be no tears.

More sneakily, you can also place a fixed bid to trigger a round of dynamic rebidding, but you are going to have to work out the right tactics for this for yourselves!

Why do dynamic bids reward early bidders?

The earliest bidder at a given rate is the last to be knocked out by lower bids, and later bidders at that rate are knocked out first. With dynamic bidding this effect persists all the way down the rebidding process, which is why earlier bidders are more likely to achieve the maximum premium above their floor bid.

The smart thing to do now is to get in at the start of the auction rather than at the end.

Thank you to all those members who contributed the comments and suggestions which have helped us improve the system, please continue to give us feedback.