South Korea’s brutal deleveraging: KOSPI plunges 17% in a single week, forced liquidations sweep retail investors

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Chasing gains is easy, deleveraging is hard.

The Korean KOSPI index plunged 17% from its high in a single week, catching Korean retail investors who had previously bet on Samsung Electronics and SK Hynix off guard—a record amount of margin accounts were forced to liquidate, reaching the highest level in recent years.

According to The Korea Times, the amount of forced liquidation accumulated over the past several trading days approached 300 billion won (around $197 million USD). The ratio of forced liquidation to margin balance reached 9.1% in a single day on one Friday, the highest level this year.

Currently, the margin balance remains at a high level. Data from the Korea Financial Investment Association shows margin balances climbed to a record 38 trillion won on May 29. As of Monday, it had slightly declined to 37.8 trillion won but was still at an extremely high level. This means deleveraging pressure is far from being fully released.

As high as the rise, as severe as the fall

Since the start of the year, KOSPI has once risen as much as 100%, nearly keeping pace with the 102% increase in the Nasdaq 100 index on the eve of the internet bubble peak in 1999.

This round of gains is almost entirely driven by retail investor momentum chasing.

Meanwhile, foreign capital continues to exit.

The issue of concentration is equally alarming—even as the KOSPI repeatedly hits new highs, the number of stocks within the market hitting new lows continues to rise, indicating the gains are extremely concentrated in just a few AI and semiconductor leaders.

How forced liquidation happens

The mechanism is not complex. Retail investors borrow money from brokers to buy stocks, usually only putting up 30% to 40% of the principal themselves. If stock prices fall and the account value drops below the margin maintenance level, brokers will automatically sell at the next day’s opening auction—regardless of price, selling comes first.

This mechanical selling directly depresses stock prices and triggers more accounts to hit margin warning lines—a chain reaction follows.

Kim Seok-hwan, analyst at Mirae Asset Securities Korea, pointed out: "When the market plunges, the biggest risk is not the drop in prices themselves, but forced liquidation." He advised investors to "lower leverage, hold more cash, and focus on high-quality assets."

Those who entered at 8200 to 8400 points now face the most pressure

Shinhan Securities analyst Noh Dong-gil made a key judgment: "It is estimated that most of the new margin positions recently entered when KOSPI was between 8200 and 8400 points."

He further noted: "Investors usually start to reduce positions actively when losses near 15%, but when losses reach about 20%, the risk of forced liquidation rises significantly."

In other words, as the index continues to decline, the scale of passive forced liquidations may further expand.

Single-stock leveraged ETFs magnify both rises and falls

Another new variable in this round of deleveraging: In late May 2026, the Korean market launched 2x leveraged ETFs for individual stocks.

These products are designed to amplify daily gains and losses, fueling rallies when rising, and becoming accelerators when falling. ZeroHedge previously warned that "the rise of leveraged ETFs may further intensify volatility during reversals."

The current situation is that continuous outflow of foreign capital provides fundamental downward pressure, while mechanical forced liquidations among margin accounts keep adding fuel to the fire. The combination of these forces makes this round of deleveraging especially intense.

Risk Warning and Disclaimer ClauseThe market has risks. Investment requires caution. This article does not constitute individual investment advice, nor does it take into account specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article suit their own circumstances. Invest at your own risk. ```