1.2 Million Korean Investors Got Margin Calls on Leveraged ETFs

In mid-July, more than a million brokerage accounts in South Korea received the same message: a margin call. According to figures circulated by Goldman Sachs's trading desk, over 1.2 million leveraged retail accounts had been hit by July 13, and between 320,000 and 360,000 were fully liquidated by their brokers. South Korea's working-age population is roughly 35.7 million. That is about one in every thirty.

This was not an equity correction. It was a hole in the household balance sheet.

Leverage on a Single Stock: How the Product Was Born

At the centre of this sits a new product: the single-stock leveraged exchange-traded fund. An ordinary ETF tracks a basket and moves with the shares inside it. A single-stock leveraged ETF is built to multiply the daily move of one company — here Samsung Electronics and SK Hynix. If the stock rises 3% intraday, the fund rises roughly 6%; if it falls 3%, the fund falls roughly 6%.

Korea approved these products recently. The timing was unfortunate. Approval landed just as the country's two memory makers were running the sharpest rally in their history. Memory demand from AI data centres had nearly tripled SK Hynix and doubled Samsung Electronics over the year. Riding a rising stock with borrowed money looked, in hindsight, like a flawless idea.

Money poured in. Total leveraged ETF assets peaked at $52.5 billion on July 22. That alone was not the problem. The problem was that most investors bought these funds not with their own cash but with margin loans from their brokers. According to HSBC's equity strategy team, roughly $23 billion of margin lending was fuelling retail participation.

The Arithmetic of Leverage: Two Separate Holes

To grasp the size of the loss you have to see two mechanisms at once. They stack, and the total is larger than the sum of the parts.

The first is the fund's own internal decay. The second is the forced-selling threshold that comes with buying that fund on borrowed money.

The second hole works faster. When you buy a leveraged fund inside a margin account, your true exposure is the fund's leverage multiplied by the loan. Someone buying a 2x fund with 50% borrowed money is effectively running 4x against the stock. At that level, a routine 10-12% pullback is enough to trigger a margin call.

And when the call arrives, you do not decide when to sell. Your broker does, that day, at that moment rather than at the close. You can be liquidated while being right, because the time you need to be proven right is longer than the time you can hold the position.

The last link feeds the first: forced sales push the price down, and the lower price pushes fresh accounts below the threshold. That was the machine running in Korea in mid-July.

The chart above is live: it shows where the US memory maker exposed to the same demand cycle trades today, not the event described here. The scale of the Korean break is in the numbers below, not in that chart.

July: The Month the Chain Snapped

Where the losses concentrated tells you this was not a product story but a single-trade story.

The total is ₩56.3 trillion, about $38.7 billion. The product itself shrank just as fast.

Buying the Fall

The detail that deserves the most attention is this: while assets fell from $52.5 billion to $19 billion, a further $6.2 billion of new money went in over the same stretch.

Buying continued all the way down. The result is that retail investors' average purchase price in SK Hynix sits at ₩2.28 million. The stock traded at ₩1.444 million on July 29 — an average loss of roughly 31.6%.

Averaging down into a falling asset is a defensible choice in an unleveraged portfolio. In a leveraged product the same reflex extends the period over which decay operates and shortens the distance to the margin threshold. Two different games, one identical instinct.

Leverage left a mark on the US side too. KORU, the New York-listed fund that triples the daily move of Korean equities, fell roughly 70% from its June 1 high. An investor holding it need not live in Korea or use a margin account; the same erosion applied. At three times leverage, volatility eats capital roughly nine times faster than at one. Wherever the product trades, the arithmetic is the same.

The Other Reading

Both columns hold together. Korea's political outcome favoured the first: on July 29 Finance Minister Koo Yun-cheol told parliament he was "sorry for introducing the product without careful consideration." Lee Eog-weon, chairman of the Financial Services Commission, said the regulator felt sorry that it had "fallen short in properly meeting the public's expectations."

What Is Left

Three regulatory steps followed: new single-stock leveraged ETF listings were suspended, marketing of the products was banned, and the minimum cash deposit requirement was tripled to ₩30 million, roughly $20,000.

Those measures govern what happens next. They do not reopen 320,000 closed accounts.

The memory demand story did not break. The AI-driven demand that lifted SK Hynix and Samsung is still there. What broke were positions carried with more debt than they could bear. Risk management is the name for exactly that distinction.

This article draws on estimates circulated in Citi and Goldman Sachs client notes, figures published by HSBC's strategy team, official statements reported by Seoul Economic Daily and MarketScreener, and CNBC's coverage. Loss estimates reflect each institution's own methodology and vary between sources; the liquidation figure of 320,000 to 360,000 accounts is a broker estimate.