South Korea's Margin Loan Scale Reaches Historic High of Approximately $26 Billion, Doubling Since Early 2025
Despite the absolute value of leverage surging, the proportion of margin loans to South Korea's free-floating market capitalization has dropped to about 0.8%, the lowest since the pandemic low in 2020.
Mechanically, during market corrections, the forced liquidation ratio has soared to 4-5% of daily outstanding margin loans, far exceeding the normal level of 1%. Funds are flowing from high-leverage retail positions to low-leverage institutions or cash, amplifying event-driven volatility. Beneficiaries are low-leverage value investors, while those under pressure are retail traders relying on leverage.
Source: Public Information
ABAB AI Insight
South Korean retail investors previously used margin leverage extensively during the 2021-2022 bull market to drive up the Kospi, and during subsequent corrections, high leverage triggered a chain of forced liquidations. Regulators have repeatedly adjusted margin requirements to alleviate systemic risks.
Capital pathways indicate that retail leveraged capital quickly entered during the bull market to boost market capitalization, while institutions and foreign capital bought on dips during corrections, strategically using retail leverage to amplify volatility and collect cheap chips, forming a unique cycle in the Korean market of "retail pushing up, leverage liquidation."
Similar to Japan's 1980s leverage-driven bubble collapse and the financing effects during China's 2015 stock market crash, the current South Korean stock market is in a phase of volatility transformation with relatively low leverage but high absolute scale.
Essentially, this reflects capital concentration, with the mechanism being that retail leverage is diluted in market capitalization expansion, yet absolute leverage still amplifies daily volatility, forcing regulators and institutional capital to concentrate towards a more stable pricing mechanism, gradually shifting pricing power from high-leverage retail to institutions and fundamental drivers.
ABAB News · Cognitive Law
Leverage pushes up temporarily, liquidation harvests for a lifetime; retail sentiment is never a long-term master.
Absolute leverage surges, relative proportion declines; market capitalization expansion conceals risk concentration.
Retail borrows to buy up, the middle class watches the correction, top capital buys on structural lows.