Worried about a "bubble," the "most speculative" South Koreans have started buying "U.S. VIX."

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Amid growing concerns over a valuation bubble in US stocks, South Korean retail investors known for aggressive trading are turning to complex leveraged VIX products, making large bets on sharp market volatility.

According to data from Korea Securities Depository, so far this year, 2x leveraged long VIX futures ETFs have attracted about $130 million in South Korean inflows, making it one of the most popular US-listed ETFs among Korean investors, ranking seventh in purchases in July. These funds account for about one-fifth of global inflows into this ETF.

This trend is driven by dual motivations. With US stock valuations hovering at historical highs and discussions of a "bubble" heating up, some investors are buying VIX-related products to hedge risks associated with their large US equity long positions. Others are simply speculating, betting on a market correction.

However, analysts warn that these products carry hidden risks. These complex leveraged volatility products are designed for short-term trading, and long-term holding almost always results in losses.

The Double Risk of Leveraged Products

Experts believe that the risks of leveraged VIX products far exceed those of ordinary leveraged securities, and Korean retail investors are unaware of this. Francis Oh, Head of Asia Business Development at Rex Shares LLC, said that these leveraged VIX ETFs are used by Korean investors to seek greater profits during panic selloffs, but Korean retail investors may not understand the technical details and risks of these securities. He said:

"They may think they're buying undervalued assets while at the same time gaining protection in case of a market crash."

Volatility-related products carry additional risks: they are built via futures positions which require continuous rebalancing, a process that typically involves selling low and buying high under normal market conditions. This means that even with short-term gains, long-term holding usually leads to losses. Professional traders are less affected by roll costs because of their swift trading in and out, but Korean retail investors may not be able to do this.

Charlie McElligott, Managing Director of Cross-Asset Macro Strategy at Nomura Holdings, stressed that the inflow of Korean funds into VIX securities should not be viewed in isolation. These inflows are accompanied by "massive long positions," reflecting investors' enthusiasm for the US market—especially given their holdings of leveraged ETFs.

"Ant" Investors' Aggressive Choices

Korean retail traders, locally known as "ants," are famed for embracing risk. Overseas leveraged or inverse securities are particularly attractive because there are currently no trading restrictions on them. In contrast, trading domestic derivatives such as futures and options in Korea requires completing up to 17 hours of education and simulated trading.

On Korea's most popular chat app, Kakao Talk, there are about a dozen public groups dedicated to discussing VIX or leveraged products, each with hundreds of users.

According to media reports, a trader using the X account @hell_inflection refused to disclose his identity in interviews, but industry insiders say posts to his 16,800 followers have helped fuel retail trading in the ETF. Despite an 18% loss, he vowed in August to "stick with it to the end."

Jung Hyundoo, who previously worked at Hanwha Investment & Securities and later founded an investment research center, explains financial concepts on programs and shares views with over 35,000 YouTube subscribers. Known as the "Money Teacher," Jung believes that given the fierce AI race and the Federal Reserve's accommodative policy, the US market will not crash in the short term and UVIX investors are destined to lose. He said in a recent interview:

"Some enthusiasts aggressively use leverage in search of higher returns, but I don't think there will be a massive market crash any time soon that could rescue the UVIX camp."

Risk warning and disclaimerThe market has risks; investment needs caution. This article does not constitute personal investment advice and does not take into account the individual investment objectives, financial situation, or needs of any user. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular situation. Investing accordingly is at your own risk. ```