Leverage waits for no one.
As South Korea's KOSPI index plunged nearly 9% in a single session on Monday, marking its seventh trading halt of the year, many retail investors staring at the sea of red on their screens were no longer pondering "how much they lost," but a far more pressing question—whether they had enough money to survive the next margin call.
The Liquidation Wave Arrives: 425.8 Billion Won Wiped Out in an Instant
The severity of this leverage-driven selloff is starkly illustrated by the numbers.
From July 1st to 10th, the total value of stocks forcibly liquidated due to insufficient margin payments in South Korea reached 425.8 billion won.
On July 9th alone, 142.2 billion won worth of shares were sold off by brokers, with the forced liquidation ratio hitting 10.2%, the highest since June 9th. On July 10th, an additional 81.6 billion won in sell orders flooded the market.
The mechanism for margin trading in South Korea is that investors can take short-term loans from their broker for settlement, typically for three business days. If the funds are not topped up by the deadline, the broker automatically liquidates the position on the next trading day—often at unfavorable prices, leaving retail investors with no say.
More dangerously, forced liquidations themselves can trigger further liquidations.
Account losses trigger insufficient margin, leading to broker-forced selling, which pushes prices lower, widening the risk exposure for more accounts and sparking a new round of liquidations. This is the spiral retail investors fear most, where losses accelerate rapidly due to leverage, rather than accumulating gradually.
Data from South Korea's Financial Supervisory Service and the Korea Financial Investment Association shows that the total value of forced liquidations across the market on July 13th reached 344.2 billion won, the largest single-day amount this year.
Over 1.2 million retail margin accounts hit margin call levels, with an estimated 320,000 to 460,000 accounts being fully liquidated by their brokers, wiping out their principal. Some investors were even left with debts exceeding their remaining capital.
Eight Out of Ten Lose: The Index Rises, But Retail Investors Don't Profit
On the surface, the South Korean stock market appeared strong in the first half of the year, with the KOSPI surging 69%, fueling market enthusiasm.
However, this impressive report card, for most retail investors, merely served as a thin veil that couldn't hide their losses.
An analysis of data from a major brokerage's individual clients revealed that from the start of the year to the end of June, the average proportion of losing investors among the 50 most-bought Korean stocks by individuals was as high as 73.45%. More extreme, for 25 of these 50 popular stocks, the loss ratio exceeded 80%.
The definition of a "losing investor" here is direct: anyone whose average purchase price was higher than the closing price at the period's end.
This seemingly paradoxical situation where the index rises but retail investors lose is not surprising. The average return of these 50 stocks in the first half was about 20.5%, but the gains were highly concentrated in a few leading names. The top five performers averaged a 198% gain, creating a powerful illusion of profitability. Retail investors often piled into the hottest stocks during the latter stages of their rallies. When the index began to correct, they not only missed the earlier gains but also caught the full force of the decline.
Critically, retail investors generally tend to make lump-sum purchases rather than building positions gradually. In a highly volatile market, judging peaks and troughs is harder, making a single large entry at a high point more likely.
Leveraged ETFs: Ground Zero for Losses, with SK Hynix Plunging 31%
The most concentrated and severe losses for retail investors in this downturn were in single-stock double-leveraged ETFs tied to Samsung Electronics Co Ltd and SK Hynix Inc.
As the KOSPI broke below the 7,000 and 6,900 points during Monday's session, all 14 single-stock leveraged ETFs hit new lows.
For example, the "KODEX SK Hynix Single Stock Leverage" ETF fell to as low as 14,835 won, a staggering 66.6% drop from its June 23rd high of 44,385 won; it closed the day down 31.46%. The story was similar for Samsung, with the "TIGER Samsung Electronics Single Stock Leverage" ETF dropping to 12,035 won, down 60.4% from its peak.
The underlying stocks themselves fell heavily—Samsung dropped 10.70% and SK Hynix fell 15.37% that day—but leveraged products tracking double the movement amplified the impact: Samsung-related leveraged ETFs fell 22% to 24%, while SK Hynix-related products plunged 31% to 33%.
The evaporation of market value was equally stark. The combined market capitalization of 16 single-stock leveraged products (including two inverse ones) shrank from over 16 trillion won on June 25th to 9.6536 trillion won, a loss exceeding 6 trillion won.
On July 13th, Goldman Sachs' sales and trading desk noted in a report to institutional clients that Gamma rebalancing from such products accounted for 62% of local institutions' net selling that day—the leverage products that retail investors dove into had become amplifiers of the market's cascading decline.
Market estimates suggest that over the past month, the actual total losses incurred by retail investors from leveraged trading reached 2.15 trillion won. Among the liquidated accounts, young investors aged 20 to 30 made up a significant 62%.
Running Out of Ammunition: Margin Balances Shrink by 20 Trillion Won in a Month
Retail investors haven't just lost money; they are also running out of ammunition to cover their positions.
Data indicates that Korean investors' margin account balances decreased by approximately 20 trillion won in one month, falling to 107.1279 trillion won. Credit financing balances also dropped from 38.6328 trillion won on June 24th to 36.6336 trillion won by July 9th.
Buying interest is receding in tandem.
From July 1st to 10th, the average daily net purchase amount by individual investors was 1.494 trillion won, down 42.4% from 2.5956 trillion won in June. The total net purchase volume by individuals plummeted from 54.5084 trillion won in June to 10.5384 trillion won, a drop of 80.7%.
Fresh inflows that were consistently entering the market in May have noticeably slowed since mid-June.
Private banking advisors at several brokerages report that while new investment consultations were fully booked before, there are now almost no new inquiries.
Clients who entered the market between May and June, in particular, experienced severe volatility before they could even turn a profit. Their most frequent question has become: "Is the semiconductor cycle over? Should I sell now?"
Another brokerage source stated that most clients with paper profits are still waiting for a rebound, but there is virtually no new money coming in.
Stock Market Losses Become Life-Altering Costs
The pain from account losses is now translating into adjustments to life plans.
Reports cite a 39-year-old office worker who invested about 80 million won, earmarked for a home purchase, into semiconductor stocks and leveraged ETFs last month. He recently faced a paper loss of roughly 18 million won and stated that if share prices don't recover, his wedding might have to be postponed.
Another 57-year-old office worker withdrew 150 million won from his retirement savings early to buy stocks like Samsung Electronics Co Ltd and SK Hynix Inc, recently incurring paper losses exceeding 30 million won. He said he had assumed the returns would surely beat bank interest, but suffered significant losses without understanding the market bottom or proper investment methods.
Other retail investors have shared screenshots showing losses on SK Hynix positions as high as 2.1 billion won.
This is the real-world version of "having no money left to average down." Not everyone is talking about recouping losses; many first need to answer a more immediate question: can they withstand the next leg down?
Capital Quietly Retreats, "No One Talks About Stocks Anymore"
The ebbing of retail sentiment is clearly visible in ETF data.
In early July, the net asset value of domestic equity ETFs in South Korea stood at 304.8371 trillion won, down 25.8085 trillion won, or 7.8%, from 330.6456 trillion won in June. This marked the first decline since March.
Simultaneously, capital preferences are quietly shifting.
While individual funds were previously concentrated in semiconductor leveraged ETFs, the "TIGER US S&P 500" ETF recently rose to the 4th spot in terms of individual net buying, and the "KODEX US Nasdaq 100" ETF rose to 7th. Individual investors have begun net selling Korean semiconductor ETFs—net selling 274.7 billion won worth of the "HANARO Fn-K Semiconductor" ETF in one week, ranking it first in net outflows among all ETFs.
Media reports summarize this cooling-off period with the phrase "no one talks about stocks anymore." More accurately, retail investors aren't completely exiting the market but are withdrawing from the most crowded, highest-volatility, and most margin-call-prone areas.
Government Steps In to Prevent Suicides Linked to Economic Crisis
At the government level, South Korea's Financial Services Commission submitted "Measures to Prevent Suicides in Households Facing Economic Crisis" at a cabinet meeting on July 14th.
The related data is alarming: the number of suicides in South Korea due to economic problems has risen steadily from 3,089 in 2015 to 4,398 last year.
Furthermore, the government plans to launch a nationwide unified debt counseling hotline (1375) in October, offering one-stop guidance for debt restructuring and personal bankruptcy applications. It will also expand its physical support network and develop a "specialized identification model for households in economic crisis" that integrates financial and non-financial data to proactively identify at-risk groups.
Financial regulators will also convene a top-level "F4 meeting" to urgently discuss potential control measures, including raising margin requirements for leveraged products, limiting daily price volatility ranges, and tightening suitability assessments.
Epilogue
A comment from Jung In Yun, CEO of Singapore-based hedge fund Fibonacci Asset Management, highlights the deepest wound of this leverage-driven turmoil: "Many retail investors seem to have viewed leveraged ETFs as long-term investment tools rather than short-term trading instruments. The massive losses may weaken their willingness and ability to buy semiconductor stocks, making a market rebound more reliant on foreign institutional funds."
The most direct blow from this Korean stock market decline for retail investors is not how much the index itself has pulled back, but the piercing of their cash flow.
Losses can wait to be repaired, but leverage waits for no one.
For many retail investors, the biggest risk now is not missing a rebound—it's not lasting long enough to see one.
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