South Korea’s July liquidations total 344.2 billion won: the “guillotine” for leveraged retail traders

Data from the Korea Financial Investment Association shows that on July 9, the single-day scale of forced liquidation surged to 142.2 billion won, pushing total forced liquidations for July to 344.2 billion won. Owing to a two-trading-day lag in the data, on July 13 the KOSPI plunged 8.95%—and the liquidation pressure triggered by circuit breakers has not yet been fully worked through. The figures to be released next will most likely jump higher as well.

The root of the stampede lies in extreme crowding plus high leverage: Samsung Electronics and SK hynix, two heavyweights, together account for about half of the KOSPI. Leverage funds are highly concentrated in a 2.5x semiconductor ETF, and people aged 20–30 make up more than 60% of the accounts that were liquidated. Once the stock price falls, the collateral ratio drops below the threshold; then brokers liquidate in bulk, which creates a passive selling pressure that slams the market—and in turn triggers more accounts to be liquidated. It’s a typical “kill more to kill more” negative feedback loop.

Regulators had signaled at the end of June that they would tighten margin credit trading, but the specific rules have not yet been implemented. The liquidation ratio has already returned to a high level ahead of that. This round of deleveraging, it seems, hasn’t hit bottom yet.