Stock Market Rebounds, But Forced Liquidations Hit 3-Year High

The stock market has experienced unprecedented volatility. After a drop of over 8% the previous day, the KOSPI surged more than 8% on June 9, reclaiming the 8,000-point mark. Despite the index's sharp rise, the impact of the recent market downturn has led to forced liquidations exceeding 300 billion won. Analysts suggest that individual investors who engaged in leveraged trading are facing significant losses.

According to the Korea Financial Investment Association, as of June 8, the actual amount of forced liquidations due to margin calls was recorded at 139.1 billion won. When combined with the 166.2 billion won recorded on June 5, the total forced liquidation amount over the past two trading days reached 305.3 billion won.

Forced liquidations occur when investors fail to repay borrowed funds used to purchase stocks or cannot maintain the required collateral ratio due to falling stock prices. As stock prices decline, losses increase, and the likelihood of forced liquidations rises. The scale of forced liquidations has surged in tandem with the recent market downturn. The KOSPI fell 1.84% on June 4, followed by a 5.54% drop on June 5. Consequently, the actual forced liquidation amount jumped from 24.3 billion won on June 4 to nearly seven times that amount the following day. On June 8, the KOSPI plummeted by 8.29%, leading to forced liquidations exceeding 100 billion won on that day alone.

Notably, the forced liquidation amount on June 5 was the highest since October 24, 2023, when it reached 548.7 billion won, marking the fifth-largest figure since records began in 2006. Given that the top four records were linked to issues such as the Youngpoong Paper incident in October 2023, the recent forced liquidation pressure due to the index's decline is considered unusual. The cumulative forced liquidation amount over the past two trading days is also at its highest level since October 2023.

While the stock market rebounded by 8.18% on June 9, concerns about volatility remain. In particular, the level of individual investors' leveraged investments is nearing an all-time high, raising the possibility of further forced liquidations. As of June 8, the balance of margin trading loans stood at 37.779 trillion won, and the balance of securities collateral loans reached 26.5509 trillion won, both at record levels.

A financial industry official stated, "In a highly volatile environment, the scale of investors' leveraged investments is also at unprecedented levels. If the market correction continues, the pressure for forced liquidations will inevitably increase."