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[Alpha Biz= Kim Jisun] |
[Alpha Biz= Kim Jisun] Retail investors in South Korea who piled into leveraged trades driven by fear of missing out (FOMO) are increasingly exposed to forced liquidation risks, as renewed concerns over an artificial intelligence (AI) bubble have triggered sharp market volatility.
According to the Korea Financial Investment Association, outstanding margin trading balances reached KRW 1.26 trillion as of August 4, the highest level since 2006. The figure remained above KRW 1 trillion the following day, underscoring elevated short-term leverage among individual investors.
Margin trading allows investors to buy stocks using brokerage funds and repay the balance within two trading days. Failure to do so can trigger forced sales, particularly dangerous in declining markets where proceeds may be insufficient to cover outstanding balances. Market participants say cases of investors holding onto losing positions in hopes of a rebound—only to face compulsory liquidation—are increasing.
Forced liquidation activity has risen sharply this month amid heightened volatility. After the benchmark KOSPI plunged nearly 300 points on August 2, forced sales totaled KRW 15.9 billion the following day, with daily forced liquidations exceeding KRW 10 billion for several consecutive sessions.
Concerns are also growing over margin loans, which have expanded to more than KRW 30 trillion. As falling stock prices erode collateral ratios, more accounts risk breaching maintenance requirements. Margin loan balances hit a record KRW 30.94 trillion on August 4 before easing slightly the next day.
Large-cap stocks have been a focal point of leveraged trading. According to Koscom, margin loan balances stood at KRW 1.95 trillion for Samsung Electronics and KRW 1.67 trillion for SK Hynix as of August 6.
Market analysts warn that while a technical rebound is possible following a rally in U.S. markets, the risk of forced liquidation remains ongoing as repayment deadlines for leveraged trades continue to fall due amid elevated volatility.
Alphabiz Reporter Kim Jisun(stockmk2020@alphabiz.co.kr)
