Removal of the lower trading threshold
From this Tuesday (18th February 2025), WhiskyInvestDirect will be removing the 10% lower threshold on orders placed on the live order board. To explain why we are doing this, we would like to talk a bit about what the thresholds represent, the market valuation that underpins them, and why we have placed limits on client trading in the past.
The WhiskyInvestDirect platform sits at the interface between the whisky trade and private investors. Trade suppliers sell their liquid to the platform (us) at a young age, investors buy from us and trade within the platform, and then once the whisky is mature, trade buyers return to the platform to place bids, either via the Bulk Trade Bid process or directly on the order board.
However, these two parties (whisky brands and private investors) have relatively limited information about each other. Both parties deal in the first instance with WhiskyInvestDirect, and there is little direct trading between the whisky industry and our investors. This means that there is no opportunity for them to reach an equilibrium on the valuation of whisky on the platform.
That is where our market valuation and trading thresholds come in. First, we create a valuation that combines recent trading on the platform along with data from the whisky industry. This is the valuation used on your balance page, and while it is not an indication of the price you could sell your whisky for immediately, it is a useful tool to determine roughly how much your account is worth.
We have historically limited trading on the platform to within 10% above and below this valuation point. The reason for this is that, because our clients do not deal directly with industry buyers, there is a risk that the valuations of each party drift far apart from each other, and stock held by one party becomes wildly overvalued in the eyes of the other – i.e., a bubble forms.
The thresholds on trading act as a tether, ensuring that prices on the platform do not drift too far from valuations held by the industry. In 2021 and 2022, we saw heavy demand for Scotch whisky on the platform, and prices rose accordingly. However, while the wider whisky world also saw increases in prices, the size of the industry meant that these were less pronounced.
At that time, the upper threshold served its intended purpose. By preventing prices from rising too rapidly, it ensured that the whisky remained desirable to industry buyers. While the high demand certainly caused some strain in the market, it remained manageable, and when prices dropped (over the last year), they did so in a controlled manner rather than falling off a cliff.
In the current market, we are seeing weaker demand and client trading is trending at lower prices than industry valuations. Industry buyers are still interested in buying, as evidenced in recent trade purchases and withdrawals, so we are confident that our market valuations are still accurate. However, with some clients looking to sell at lower prices and the whisky trade currently cautious about the volumes of liquid it buys, the price threshold is coming into play again.
While we remain confident in the necessity of an upper threshold, we are reconsidering the need for a lower threshold. Clients looking to sell their liquid at lower prices have access to our valuations via their balance page, and they have full information if they do still choose to sell at a discount. There is no risk of a bubble forming due to undervalued stock (as there would be with overvalued stock), and so there is no need for a lower threshold on prices.
From Tuesday 18th February, we will be removing the lower threshold on placing and accepting offers. In the coming weeks, we will be introducing upper and lower buttons to the order panel which will set the price to 10% above or below our market valuation, but clients will still be able to place trades below that price.
We have prepared some FAQs to help better understand this change, but if you have any questions feel free to get in touch.