South Korea Requires New Investors to Simulate Trading for Five Days Before Buying Leveraged ETFs
The South Korean Financial Services Commission announced that starting from August 19, new retail investors in single stock leveraged ETFs and ETNs must complete at least 5 trading days of simulated trading, totaling no less than 5 hours, with at least 1 hour each day.
This requirement applies to both domestically and overseas listed single stock leveraged and inverse products, with simulated trading provided for free through the Korea Exchange website, aimed at allowing investors to experience the effects of negative compounding and the actual trading environment. Previously, the minimum cash margin was raised to 30 million won, and investor education was strengthened.
This move comes in response to regulatory tightening after retail investors faced massive losses and forced liquidations related to leveraged products of Samsung Electronics and SK Hynix. Citigroup estimates that retail investors have incurred cumulative losses of about $38.7 billion on leveraged ETFs over the past month, with trading volume for related products plummeting by over 90% after the margin increase.
Professional investors, corporations, and foreigners are exempt from this simulation requirement, as are those with relevant trading experience. Regulatory authorities are also tightening the standards for managing ETF and ETN price spreads.
From a market mechanism perspective, event-driven regulation directly suppresses trading activity in high-leverage products, with funds flowing from single stock leveraged ETFs to lower-risk assets or overseas markets. Beneficiaries include providers of compliance education and simulation systems, while those under pressure are brokers and product issuers that rely on retail speculative flows, leading to a rapid reduction in overall leveraged funds.
Source: Public Information
ABAB AI Insight
After South Korea approved the listing of Samsung and SK Hynix single stock leveraged ETFs in May 2026, it quickly sparked a speculative frenzy, with retail margin balances reaching record highs. Subsequently, a market correction led to forced liquidation volumes soaring to seven times that of the same period last year, prompting regulators to urgently raise margins and suspend new listings in July.
In terms of capital flow, retail funds concentrated through broker leverage channels into semiconductor-themed products, motivated by the pursuit of high returns. However, negative compounding and amplified volatility quickly eroded principal, revealing regulatory lag in retail protection and product design flaws.
Similar cases can be seen in other markets with educational and threshold restrictions on leveraged ETFs, as well as simulation or qualification requirements for retail options and contracts for difference in multiple countries during the 2020s. Currently, South Korea is transitioning from product innovation openness to tightening post-risk control.
Structural judgment belongs to regulatory changes: local financial regulation directly raises retail entry costs through mandatory simulation and margin thresholds, replacing simple information disclosure with experiential thresholds, forcing investors to perceive leverage loss before entering with real funds, thereby reducing systemic forced liquidation risks.
ABAB News · Cognitive Law
The easier leverage is to obtain, the more concentrated the losses.
Simulation thresholds are more effective than warnings.
The end of retail frenzies often leads to regulatory catch-up.