Korean retail investors are betting on a market rebound by purchasing leveraged ETFs and selling inverse products, even as the KOSPI plunged more than 7% following escalating tensions between the United States and Iran.
Margin trading balances have hit record highs amid the volatile market conditions. According to the Korea Financial Investment Association, outstanding margin loans reached 32.67 trillion won ($22.4 billion) as of January 27, up approximately 300.5 billion won from the previous trading day.
Margin trading allows investors to borrow funds from securities firms to purchase stocks. Investors must maintain a certain collateral ratio, and when stock prices fall below the required threshold, brokerages forcibly liquidate positions through margin calls. The metric is widely considered a key indicator of retail leverage exposure.
The surge in leverage demand has pushed some brokerages to their limits. NH Investment & Securities announced it will suspend new margin loans starting January 5 after exhausting its credit extension quota. Analysts warn that if collateral ratios deteriorate across more accounts during the sharp downturn, a cascade of forced liquidations could accelerate the market decline.
Bearish bets are also rising rapidly. KOSPI short-selling balances reached 1.94 trillion won, the highest level since short selling fully resumed in late March last year.
Despite the heightened volatility, retail investors are positioning for a recovery. Individual investors were net buyers of KODEX Leverage ETF, purchasing 462.4 billion won worth of shares—the largest single-day amount. They also accumulated KODEX KOSDAQ150 Leverage (232.5 billion won), KODEX 200 (182.8 billion won), and TIGER Semiconductor TOP10 Leverage (134.6 billion won).
Conversely, investors sold off bearish products, with net sales of 136.5 billion won in KODEX 200 Futures Inverse 2X and 56.6 billion won in KODEX Inverse.
Market observers cautioned that the combination of elevated margin balances and substantial short-selling positions could amplify volatility. "If the U.S.-Iran conflict escalates into full-scale war, the KOSPI could experience a sharp correction of around 10%," said Kim Yong-gu, a researcher at Yuanta Securities.