Forced Sales of Retail Kospi Holdings Top 300 Billion Won in Two-Day Rout
Summary
- The Kospi plunge triggered more than 300 billion won of forced liquidation in retail stock holdings through margin calls over two days.
- Unpaid margin balances and outstanding margin loans remained high, showing retail investors are still heavily relying on debt-fueled investing.
- In a sharp selloff, leveraged products and margin loans can lead to steep losses and forced liquidation, calling for caution.
Forecast Trend Report by Period
Retail investors were forced to liquidate more than 300 billion won ($217 million) of stock over two days as the Kospi plunged, market data showed.
According to the Korea Financial Investment Association on June 9, unpaid balances from consigned stock trading, classified as ultra-short-term debt-funded bets, stood at 1.6245 trillion won ($1.18 billion) as of June 8. That was down 64 billion won from 1.6885 trillion won on June 5, but still about 300 billion won above 1.3277 trillion won on June 2.
In these trades, investors buy stocks with money borrowed from brokerages and must repay the funds within two trading days. If they fail to do so, the shares are forcibly sold on the third trading day, potentially at the daily 30% limit-down price. Such liquidations can inflict heavy losses on retail investors and add to market volatility.
The Kospi tumbled 5.54% on June 5 and 8.29% on June 8, briefly falling below the 8,000 level. The latest wave of forced selling followed that drop.
Forced liquidations totaled 139.1 billion won ($101 million) on June 8, the third-largest daily amount this year. That followed 166.1 billion won ($120 million) on June 5. Forced sales topped 100 billion won on both days, taking the two-day total to more than 300 billion won. Although forced liquidations reached 145.8 billion won on May 20, this was the first time this year that the figure exceeded 100 billion won for two straight sessions.
Forced sales accounted for 8.2% of unpaid margin balances on June 8, remaining high after 9.1% in the previous session. On June 5, the ratio hit its highest level since Oct. 24, 2023, when it stood at 53.2%.
Outstanding margin loans stood at 37.7091 trillion won ($27.3 billion) on June 8, down slightly from 37.8383 trillion won on June 5. The figure represents money investors borrowed from brokerages for stock purchases and had yet to repay, underscoring the scale of debt-fueled retail trading.
Margin lending typically rises when more investors expect stock prices to gain. But if those loans are not repaid within a set period, the positions are forcibly liquidated. In a sharp downturn, that can lead to steep losses.
Some investors are also growing more fearful about the Kospi selloff. Retail traders who borrowed to invest or bought leveraged products can face forced liquidation if collateral in their accounts falls short. In a falling market, leveraged products can also produce losses that are twice the targeted return, amplifying downside risks.
Still, the Kospi closed in the 8,090 range that day, up more than 8%, recouping much of the previous session's plunge.
Kim So-yeon, Hankyung.com reporter sue123@hankyung.com
