"Five rounds of buying the dip, yet the account is still halved"... Leveraged ETFs have become a 'meat grinder' for Korean retail investors, with some calling for 'state compensation.'

The South Korean single-stock leveraged ETF market is undergoing a retail investor crisis. Amidst severe stock market volatility, a large number of individual investors are sinking deeper as they repeatedly try to average down their costs, with floating losses in their accounts commonly exceeding 50%. The root of this crisis is the hastily launched policy products by financial authorities two months ago to curb capital outflows.

On July 28, both of Korea's major stock markets triggered circuit breakers on the same day, and market sentiment deteriorated sharply. The KOSPI fell below 6000 points for the first time in more than three months. Against this backdrop, the cumulative monthly transaction volume of "KODEX SK Hynix Single Stock Leveraged" and "SOL SK Hynix Futures Single Stock Reverse 2X" exceeded 139 trillion KRW, surpassing the entire KOSDAQ market's turnover (113 trillion KRW) during the same period by more than 26 trillion KRW. The Financial Services Commission of Korea announced that if market demand remains high, it will consider further raising the investment threshold or setting personal investment limits.

Countless ordinary retail investors are direct victims of this turmoil. The Financial Services Commission of Korea raised the minimum margin requirement for related products from 10 million KRW to 30 million KRW on July 16, yet trading enthusiasm did not subside—on the day of the announcement, single-stock leveraged products accounted for as much as 36.6% of all ETF trading, and this proportion has since stayed between 37% and 43%. Criticism has intensified, with some arguing that the authorities were seriously negligent in the product approval phase, and calls for initiating national compensation procedures have emerged.

Retail Investors Deeply Trapped in Averaging Down: Shocking Losses

Cases of severe losses among individual investors are emerging online in large numbers.

45-year-old office worker Kim started with 7 million KRW, investing in single-stock leveraged ETFs of SK Hynix and Samsung Electronics. Each time the stock price dropped, he would buy more, citing "lowering the average price helps rebound back to break even," eventually averaging down five times, swelling his total investment to 34 million KRW. His floating loss now exceeds 50%. "I kept buying to recover my losses, but ended up sinking deeper. Now I can neither sell nor buy," he said.

25-year-old college student Choi's experience is similarly typical. He entered the market with 8 million KRW saved from part-time work, then took a loan for living expenses to buy more single-stock leveraged ETFs after semiconductor stocks fell, ultimately left with only about half his principal. "The speed at which losses expand is much faster and more brutal than when making profits," he said.

On the workplace anonymous community "Blind," a bank employee posted that his 20 billion KRW investment portfolio had once grown to 7 billion KRW but shrank to about 2.2 billion KRW within a month after concentrating on Samsung Electronics, SK Hynix stock, and single-stock leveraged ETFs. Yeo Kyung-ok, a Chinese food chef who previously won a live trading competition with a 750% return, also disclosed his SK Hynix leveraged ETF account—about 120 million KRW in principal now valued at only 46 million KRW, with a floating loss of about 74 million KRW, a loss rate of 61.38%.

Structural Risks of Leveraged Products Underestimated

The core reason for the prolonged losses is the product mechanism of leveraged ETFs.

These products track double the daily yields of the underlying asset. If the underlying asset rises unilaterally, returns are amplified; however, in alternating bullish and bearish market conditions, the "negative compounding" effect causes losses to accumulate—so even if the underlying eventually returns to its original level, leveraged ETFs often cannot recover the lost ground.

Bae Jae-kyu, President of Korea Investment Management, recently issued a public warning: "If the underlying stock keeps fluctuating like now, leveraged ETFs will keep accumulating losses every day. Even if the stock eventually returns to its original position, the ETF price is unlikely to recover." He advised investors, "Even now, do not invest in single-stock leveraged ETFs."

From an industry perspective, the retail investors' concentrated pursuit of single themes is also a structural weakness that amplifies losses. The "RISE Donghak Ant" ETF, which tracks domestic retail investor movements, has only risen about 13% this year, whereas the RISE KOSPI ETF surged about 58% in the same period; the "KODEX US Xihak Ant" ETF tracking overseas retail positions fell 2.7% this year, whereas the KODEX US S&P 500 ETF rose 11.2%. Hana Securities ETF researcher Park Seung-jin noted that individual investors tend to have higher risk appetites and select stocks based on momentum and trends, which can lead to substantial drawdowns in market reversals.

Controversial Rushed Product Launch, Calls for "State Compensation"

The policy background behind this crisis is equally controversial.

The above single-stock leveraged ETFs were introduced on May 27, officially intended to ease high currency pressure, curb capital outflows, and invigorate the domestic stock market. However, after listing, massive funds rapidly concentrated into specific single-stock leveraged products, and mechanical rebalancing before daily closing amplified price volatility in the underlying stocks, raising market concerns about "Short Gamma" effects. As reported, the net assets of related products reached 16 trillion KRW by the end of June, with single-day trading volume at times hitting 14 trillion KRW.

In response to chaos, the head of Korea's Financial Supervisory Service, Lee Chan-jin, previously stated: "Now I regret it; at the time, I should have fought to block (the securities declaration approval)." This statement is widely seen as a tacit admission by regulators of mistakes during approval.

Critics argue that authorities pushed the launch without properly assessing market impact and risk control mechanisms, causing many retail investors to suffer heavy losses; some opinions say national compensation for regulatory negligence should be pursued, and they urge the National Assembly's Political Affairs Committee to investigate and hold those responsible for product approval. Kim Eun-hye, a People's Power Party lawmaker, said that she is collecting opinions from affected investors and hopes the situation improves soon.

Regulators Step In, Follow-Up Measures Pending

Financial authorities have stated clearly that they will further tighten regulation, but the scope is still under observation.

On July 27, the ruling Democratic Party's K-Capital Market Special Committee held a closed-door meeting with securities and asset management companies, deciding to first observe the effects of existing measures such as raising the minimum margin to 30 million KRW before considering additional controls. The committee indicated it does not currently intend to force delisting or reduce leverage ratios but retains the option to take further action depending on market conditions.

Financial Services Commission Chairman Lee Eok-won stated at a meeting with securities and asset management representatives on July 28 that "If market demand does not cool sufficiently, we will consider raising investment requirements or setting personal investment limits," and pledged to continue implementing measures to reduce market volatility and strengthen investor protection.

Risk Warning and DisclaimerThe market has risks; investment needs caution. This article does not constitute personal investment advice and has not considered the specific investment goals, financial conditions, or needs of individual users. Users should consider whether the opinions, views, or conclusions in this article fit their particular situation. Invest at your own risk.