South Korean investors lose $1.45 billion due to forced liquidations

South Korea is being severely impacted by a wave of forced liquidations on the stock market. Retail investors are losing an estimated total of KRW 2.15 trillion, equivalent to approximately $1.45 billion, as a result of leveraged trading through margin loans. Notably, young investors in their twenties and thirties are by far the hardest hit.

Young investors bear the brunt of the damage

Of all forced liquidations, 62% come from investor accounts belonging to people in their twenties and thirties. This points to a pattern in which younger investors tend to take larger risks with borrowed money more often. By 13 July, margin calls had been triggered on roughly 1.2 million retail accounts with leveraged positions, a situation where the broker demands additional collateral because the value of the position has fallen too far.

For some of these accounts, the situation goes beyond a mere margin call. An estimated 320,000 to 460,000 accounts are fully liquidated by the broker, meaning the entire position is forcibly sold to limit further losses.

Korea Financial Investment Association records massive forced sales

The Korea Financial Investment Association, the main trade body for the securities sector in South Korea, is tracking the damage. Between 1 and 13 July, the organisation recorded KRW 451.9 billion in actual forced sales resulting from unsettled trades. A Bloomberg chart shows that forced liquidations in June and early July peaked at around 200 billion won per day, far exceeding anything measured earlier in the past year.

The situation raises questions about risk awareness among young investors and the role brokers play in providing margin loans. More background on this development can be found at MacroStream. The scale of the losses in such a short period makes clear how quickly leveraged positions can turn sour in a declining market, especially for investors with little experience in managing such risks.