Margin trading has significantly decreased. Analysts suggest that the recent market declines have heightened investor caution regarding short-term leveraged investments.
According to the Korea Financial Investment Association, as of July 23, the amount of margin trading debt was recorded at 945.4 billion won, a decrease of 80.8 billion won from the previous trading day on July 22, when it stood at 1.0263 trillion won. This marks the first time margin debt has fallen below 1 trillion won since April 23, when it was 996.6 billion won. Compared to June 25, just before the recent market downturn began, margin debt has decreased by 1.1233 trillion won (54.4%) in just one month.
On July 24, the margin debt slightly increased to 1.0321 trillion won.
In the past month, the stock market has experienced significant fluctuations, leading investors to increase their cash holdings rather than engage in aggressive margin trading. The KOSPI index rose to 911.455 on June 22 but plummeted by 9.99% the following day. Subsequent declines included drops of 7.89% on July 2, 4.91% on July 7, 5.35% on July 8, 8.95% on July 13, 6.37% on July 16, 4.46% on July 20, and 5.72% on July 24, indicating increased volatility.
However, the response from investors during this recent downturn has differed from that in March. In early March, the stock market faced significant volatility due to rising geopolitical tensions. The KOSPI fell by 7.24% on March 3 and 12.06% on March 4, dropping to the low 5,000s, but rebounded by 9.63% on March 5. At that time, the perception of excessive losses and a renewed interest in bargain buying led to a surge in margin trading, with debt reaching a peak of 2.1487 trillion won on March 5, which was 1.2033 trillion won (56.0%) higher than the amount recorded on July 23.
Margin trading allows investors to buy stocks using borrowed funds from brokerage firms, with the obligation to pay for the shares by the settlement date. If investors fail to make the payment on time, the brokerage firm may forcibly liquidate the shares through a forced sale. While this can amplify investment potential in a rising market, it also carries the risk of rapid losses during periods of high volatility.
The increased burden of forced liquidations has also contributed to the recent decline in margin debt. On July 9, out of 1.4322 trillion won in margin debt, 142.2 billion won was subject to forced liquidation, raising the proportion of forced sales to 10.2%. This high level continued with forced liquidation ratios of 4.6% on July 20 and 5.7% on July 21. However, as margin trading itself sharply decreased, the scale of forced liquidations also quickly diminished.
On July 24, when the KOSPI fell by 5.72%, the margin debt was recorded at 1.0321 trillion won, only slightly higher than the previous day. The amount of forced liquidation was 7.488 billion won, accounting for just 0.8% of the margin debt. This suggests that many investors opted to remain cautious rather than pursue additional leveraged investments during the market downturn.
A securities industry official stated, "In the past, many investors viewed market declines as opportunities for bargain buying, but recently, the heightened volatility has shifted the focus toward loss management rather than expectations of a rebound. The increased caution regarding forced liquidations has also likely contributed to the decrease in margin trading."
* This article has been translated by AI.
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