As these instruments track two times the daily performance of specific individual stocks—Samsung Electronics and SK hynix — the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) warned that they can conversely accelerate catastrophic losses.
According to the FSC and the FSS, single-stock leveraged products will debut on the domestic stock market starting Wednesday. For ETFs, eight asset management firms will roll out a total of 16 products, while Mirae Asset Securities will introduce two ETN products. The underlying assets are strictly limited to Samsung Electronics and SK hynix.
These products are structured to track two times the daily return of a specific stock.
If Samsung Electronics shares advance 5 percent in a single day, the corresponding ETF would surge approximately 10 percent; conversely, if the stock sheds 5 percent, the ETF would plunge roughly 10 percent. Given the daily price fluctuation limit of plus or minus 30 percent, an investor could theoretically face a maximum loss of up to 60 percent in a single day, making them unsuitable for investors with a low capacity to absorb losses.
These new instruments also lack the benefit of diversification. Rather than spreading risks across multiple shares like traditional KOSPI 200 ETFs, these products invest exclusively in a single stock. Consequently, negative catalysts such as a downturn in the semiconductor cycle or an earnings shock could cause the prices of these leveraged products to fluctuate violently.
Similarly, from last year through early this year, while Tesla shares advanced approximately 18 percent, a corresponding two times leveraged ETF suffered a 20 percent loss due to repeated volatility eroding returns over time.
This discrepancy stems from the compounding error, often referred to as "volatility drag." If an underlying stock's price repeatedly fluctuates over a prolonged period, the cumulative return can diverge significantly from the two times return expected by investors. For instance, if a two times leveraged product surges 60 percent on the first day and plunges 60 percent on the second, the cumulative loss will widen to 36 percent.
Another risk factor is premium/discount volatility, where the market trading price of an ETF deviates excessively from its actual net asset value (NAV) if investment demands heavily concentrate on one side. The FSS urged investors to verify tracking error rates via the Korea Exchange (KRX) platform prior to trading.
To mitigate speculative frenzies, authorities have raised entry barriers. New investors must complete an additional two-hour online preparatory training course and maintain a minimum base deposit of 10 million won (US$6,667). According to financial authorities, approximately 93,000 investors completed the advanced training between April 28 and May 21.
The regulatory emphasis on caution is deeply intertwined with the recent boom in leveraged trading, driven by retail demand for high-risk foreign tech ETFs. While authorities permitted these local products to resolve regulatory asymmetries with overseas markets, they remain vigilant against excessive speculation. The FSS stated that it plans to intensively monitor trading trends and tracking errors moving forward, while cracking down on deceptive marketing that could mislead retail investors.
Market observers also note that retail investors' appetite for high-risk instruments could expand further, driven by the recent investment frenzy surrounding semiconductors and artificial intelligence. The so-called "National Growth Fund" — a goverment-supported fund investing in strategic, high-tech sectors such as semiconductors, AI, and robotics — began its sales last Friday with a total volume of 600 billion won ($400 million).
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