Forced liquidations of margin positions exceeded 700 billion won in May, the largest monthly figure this year, even as the KOSPI rapidly broke through the 7,000 and 8,000 levels last month. Analysts attribute the surge to a rapid rise in investors hastily jumping into leveraged trading, or "bittu" (debt-fueled investment), amid a rally accompanied by sharp volatility.
According to the Korea Financial Investment Association on Tuesday, forced liquidations relative to unpaid balances on brokerage accounts totaled 707.7 billion won in May. The figure is 28.5% higher than the 550.8 billion won recorded in March, when extreme volatility unfolded in the wake of the Middle East war. Even though the KOSPI rose 28.4% last month, losses from leveraged trading proved even greater.
Margin trading is a form of ultra-short-term leveraged investment in which an investor borrows cash from a brokerage to buy stocks. If the investor fails to pay the balance by the second trading day, when the actual stock settlement takes place, the brokerage sells the stocks at the opening auction market price the following trading day in an amount sufficient to cover the unpaid balance — a process known as forced liquidation.
Forced liquidations were concentrated between May 18 and 20. After the KOSPI broke through the 8,000 mark for the first time in intraday trading on May 15, only to slide back to 7,493.18, most investors who had bet on further gains through margin trading are estimated to have suffered losses.
Forced liquidations on May 20 alone reached 145.8 billion won. It was the first time daily forced liquidations had exceeded 100 billion won this year, and the largest single-day figure since October 2023, when the trading halt of Yeongpoong Paper Manufacturing triggered massive unpaid balances.
Including credit loan liquidations, which are not captured in the association's statistics, the total scale of liquidations is estimated to be even larger. Outstanding credit loan balances stood at 37.6811 trillion won the previous day, up 5.5% from 35.7131 trillion won at the end of April. Credit loans refer to unpaid amounts after investors borrow funds from brokerages to buy stocks, and brokerages can forcibly dispose of the shares if the value of the collateral stocks falls.
