[Edaily Reporter Park Soon-yeop] While the KOSPI has surged to around the 9,000 mark and the “debt-fueled investment” craze continues, the burden on leveraged investors is growing due to frequent sharp fluctuations. As the balance of margin trading loans surpassed 38 trillion won for the first time in history, the volume of forced liquidations has tripled in just one month. Given that the KOSPI market has triggered the “side car” mechanism 20 times this year, concerns are mounting that forced liquidations could intensify downward pressure during a market correction.
According to the Korea Financial Investment Association on the 3rd, the outstanding balance of margin loans surpassed 38 trillion won for the first time in history on the 29th of last month. Although it decreased slightly to 37.6812 trillion won on the 1st, it remains at an all-time high. The outstanding balance of margin loans represents the amount investors have yet to repay after purchasing stocks using a combination of their own funds and loans from securities firms, serving as a key indicator of individual investors’ demand for leveraged investing.

The increase in margin trading is attributed to the index’s sharp rise over a short period. The KOSPI is attempting to break through the 9,000 mark, driven by the strength of major semiconductor stocks, and buying interest is concentrated on stocks with significant index weighting, such as #SamsungElectronics and #SKHynix. With retail investors joining the rally late in the game, the scale of leveraged investing has also grown rapidly.
The problem is that as margin trading increases, the volume of forced liquidations is also rising. According to the Korea Financial Investment Association, the value of forced liquidations last month reached 794.6 billion won, approximately three times the 264.2 billion won recorded the previous month. Forced liquidation is a mechanism whereby a securities firm is compelled to sell an investor’s holdings if the investor fails to repay borrowed funds or if the collateral ratio falls below the required threshold.
The rise in forced liquidations could become a burden amid heightened market volatility. This is because a sharp drop in stock prices leads to a decline in the collateral ratio, triggering more forced sales, and this selling pressure can in turn fuel further price declines. In other words, while leveraged investing boosts returns during a bull market, it can simultaneously amplify losses and selling pressure during a market correction.
Recently, intraday volatility in the domestic stock market has widened significantly, even as the market has marched toward record highs. According to the Korea Exchange, the “sidecar” mechanism has been triggered a total of 20 times in the KOSPI market this year. This accounts for 25% of the 80 total triggers recorded since 2002, when the exchange began compiling relevant statistics based on current trigger criteria.
This year’s activation count is just six short of the annual record of 26 set in 2008 during the global financial crisis. On a monthly basis, after three activations in February, seven in March, three in April, and six in May, the mechanism was triggered once again on the 1st of this month, marking the first time since 2002 that it has been activated for six consecutive months. The "side car" is a mechanism that suspends the effectiveness of program trading orders for five minutes whenever the KOSPI 200 futures move more than 5% from the reference price for a period of one minute or longer.
Frequent sharp fluctuations have also become common at the individual stock level. The Volatility Interruption (VI) mechanism, which switches to a single-price trading system for two minutes when stock prices fluctuate sharply, has been triggered 58,786 times so far this year as of early June. This translates to a monthly average of over 11,000 instances, significantly exceeding the monthly average of 7,553 during the COVID-19 pandemic in 2020.
The KOSPI 200 Volatility Index (VKOSPI), often referred to as Korea’s “fear index,” has also remained at elevated levels. On the 2nd, the VKOSPI surged to 75.42 during intraday trading, marking the third consecutive trading day it has exceeded the 75-point threshold. This indicates that the expected volatility over the next 30 days, as reflected in option prices, has increased significantly.
Another factor cited is the recent surge in trading of single-stock leveraged exchange-traded products (ETPs) based on Samsung Electronics and SK Hynix. This is because if funds flood into products that track the daily returns of individual large-cap stocks at double the rate, it could lead to significant supply-and-demand fluctuations in linked markets such as the underlying assets, futures, and swaps. Given that both stocks account for a significant portion of the KOSPI, there is a possibility that short-term price movements in these stocks could spill over into the overall volatility of the index.
Securities analysts advise caution regarding the combination of the pace of the rally and leveraged funds. While a rapid rise in the index can fuel expectations for further gains and increase margin trading, a correction could trigger a chain reaction of forced selling, amplifying the decline.
Han Ji-young, an analyst at Kiwoom Securities, said, “While upside catalysts remain, such as further upward revisions to earnings consensus, the perception that the market has surged twofold since the start of the year and the sector polarization caused by the dominance of AI-led stocks could stimulate short-term profit-taking.” She added, “It is important to bear in mind that the interplay of major events, the rapid pace of the index rally, and sector polarization could lead to larger intraday price swings in the domestic stock market compared to other markets.”