The KOSPI index has experienced three consecutive days of declines, dropping 1,162.19 points, as market attention shifts from the index's fall to the scale of forced liquidations and margin calls. Concerns are growing that the drop in collateral value could lead to increased volatility in the stock market.
According to the Korea Financial Investment Association, the scale of forced liquidations on July 29 reached 61.1 billion won, a staggering 340% increase from the previous day's 13.9 billion won. The proportion of forced liquidations to the total margin debt also rose from 1.3% to 5.0% during the same period. The margin debt was recorded at 12.237 trillion won on July 28 and 12 trillion won on July 29.
Margin debt occurs when investors purchase more stocks on margin than they have in cash and fail to pay the outstanding amount by the settlement date, which is two trading days later (D+2). If investors cannot repay their margin debt on time, brokerage firms can sell their holdings at market prices without the investors' consent to recover the debt, a process known as forced liquidation.
The domestic stock market has shown a record decline for three consecutive days. The KOSPI fell by 10.84% and 5.98% on July 28 and 29, respectively. On July 28, it dropped to 5,992.91 during trading, marking the first time it fell below the 6,000 mark since April 14. The following day, it fell to 5,262.77. On July 30, the index initially rebounded by over 5% but ultimately closed down 1.23%, failing to recover the 6,000 level.
The KOSDAQ market is faring even worse. The KOSDAQ index fell by 7.72% on July 28, dipping below 700 for the first time since April of last year. It continued to decline by 6.12% on July 29 and an additional 2.70% on July 30, closing at 644.78. This level is comparable to the lows seen during the state of emergency in December 2024. If the downward trend continues, further forced liquidations could exacerbate market declines and increase investor losses in a vicious cycle.
Market observers are focusing on the likelihood that the burden of forced liquidations will persist for the time being. The balance of margin loans, which approached 38 trillion won in mid-June, has decreased to the 32 trillion won range since July 22, but remains at a high level.
A securities industry official stated, "In a sharp decline, investors with high leverage can become subject to margin calls or forced liquidations due to short-term price fluctuations. In a volatile market, it is crucial to refrain from excessive leveraged investments and to regularly check collateral maintenance ratios to manage risks effectively."
* This article has been translated by AI.
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