Forced liquidations from ultra-short margin trades top 10% for first time this year

The launch of single-stock leveraged products tied to Samsung Electronics and SK Hynix has fueled a surge in high-risk trading and extreme market volatility, pushing the ratio of forced liquidations against outstanding margin debt above 10% for the first time this year.

The figure tracks the share of ultra-short margin trades — in which investors buy shares with only partial collateral and must settle the balance within days — that end in forced liquidation because the investor cannot cover the outstanding amount. A reading above 10% has not been recorded since the Youngpoong Paper crisis in October 2023. Analysts warn that the high-risk trading frenzy that followed the listing of single-stock leveraged ETFs has compounded market volatility and is now translating directly into a rise in forced liquidations.

According to the Korea Financial Investment Association, the ratio of actual forced liquidation amounts to outstanding margin debt stood at 10.5% on June 9 — the highest reading this year. The total value of forced liquidations that day reached 169.8 billion won (approximately $112 million), more than nine times the daily average of about 18 billion won so far this year.

In a margin trade, an investor buys shares by putting up only a portion of the purchase price as collateral, with the remaining balance due by the settlement date. That unpaid balance is the outstanding margin debt. Domestic equities settle on a T+2 basis — two trading days after the transaction. If an investor fails to cover the balance by then, the brokerage typically liquidates the position on the following trading day, T+3, through a forced sale to recover the funds.

The forced liquidation ratio surged to a year-to-date high in June because short-term money that had poured in during a sharp rally could not withstand the subsequent selloff. Investors who had taken on margin positions during the run-up were ultimately unable to repay their outstanding balances once prices fell sharply, triggering a wave of forced liquidations.

Leveraged bets on Samsung Electronics and SK Hynix are particularly vulnerable: the negative compounding effect means that repeated sharp swings make recovery increasingly impossible.

The forced-liquidation burden is now heavier than it was during the sharp selloff in March. When Middle East-related risk sent Kospi plunging more than 12% in a single session that month, the forced liquidation ratio held at roughly 2 to 6%. In June, the ratio came in at 9.1% on June 5, 8.2% on June 8, and 10.5% on June 9 — well above those earlier levels. Analysts point to a sharp deterioration in overall market volatility as the primary cause.

The listing of single-stock leveraged ETFs is also drawing concern as a driver of that volatility. Since Samsung Electronics and SK Hynix single-stock leveraged ETFs debuted on May 27, Kospi has repeatedly swung between gains and losses of 5 to 8%. Leveraged ETFs must rebalance their holdings daily to deliver twice the underlying asset's return. When a stock falls sharply, the fund must sell more of the related shares or futures to restore its target multiple; when it rises sharply, it must buy more. That concentrated buying and selling pressure on Samsung Electronics and SK Hynix has been amplifying index-level volatility.

Meanwhile, Kospi showed extreme volatility Thursday as well. The index opened down 221.20 points, or 2.86%, at 7,509.62 and slid as far as 7,394.46 shortly after the open, briefly falling below the 7,400 level. Buying interest then returned, lifting the index back above 7,800 and pushing it into positive territory — all within the morning session alone.