A sharp pullback in South Korean stocks has hit leveraged retail traders, with forced liquidations reaching 400 billion won, or about $286 million, on July 14, according to the report.
At the same time, trading on Upbit, South Korea’s largest cryptocurrency exchange, surged 1426% from normal levels. The report says the jump suggests investors are looking for alternatives outside the stock market.
Leveraged retail traders take the brunt of the reversal
The report says concerns had been building over retail investors borrowing to buy stocks, even as the Korea Composite Stock Price Index, or KOSPI, broke above the 9000-point mark and continued setting record highs. Margin trading and overdraft loans had kept expanding during that period.
In the bull run, many retail traders piled into positions on the belief that buying Samsung Electronics and SK Hynix would guarantee profits. Once the market turned, those highly leveraged investors were among the hardest hit.
Some investors were quoted as saying, “I wanted to buy more on the dip, but I don’t even have money left to average down.” The report added that losses caused by forced liquidations could no longer be recovered.
Crypto volumes rise as stock-market liquidations hit
While South Korean equities were going through a wave of forced selling, Upbit posted a sharp spike in activity. Data cited in the report showed trading volume jumping 1426% from ordinary levels.
The report links that move to capital rotating from the traditional stock market into crypto. Under pressure from a pullback after stocks traded at elevated levels, some investors appeared to shift to the cryptocurrency market, which the report described as more volatile but also more liquid.