Financial authorities have recently urged investors to exercise caution regarding 'perpetual futures' products traded on overseas cryptocurrency exchanges. These products feature extremely high leverage, reaching up to 200 times, which means that even slight movements in the underlying asset's price can result in total loss of investment. Additionally, domestic laws provide limited investor protection in these cases.
On October 16, the Financial Services Commission and the Financial Supervisory Service released a statement outlining the 'Precautions for Users of Perpetual Futures.'
Perpetual futures are products based on underlying assets such as stocks or cryptocurrencies, and their trading has been increasing, particularly on offshore platforms. Unlike traditional futures, these products have no expiration date and do not require the delivery of money or assets at a specific future date. They can be traded 24/7, which is another distinguishing feature.
The financial authorities specifically warned about the risks of excessive leverage. Currently, major perpetual futures products are structured to be linked to price fluctuations of the underlying assets at ratios ranging from 10 to 200 times. A minor movement in the opposite direction of an investor's position can lead to significant losses.
For example, a product linked to the Korean stock index at a 150 times leverage could result in the total liquidation of an investment if the index moves just 0.66% in the opposite direction during trading hours. The higher the leverage, the faster the losses can accumulate, leaving investors with little time to respond before losing their entire investment.
Unlike domestic derivatives, investor protection measures are difficult to apply in these cases. Domestic exchange-traded derivatives are subject to regulations under the Capital Markets Act, which includes entry restrictions for businesses and investor protection systems. Individual investors must meet certain requirements, such as maintaining a minimum deposit and completing pre-training and simulated trading, to trade futures and options.
In contrast, most offshore cryptocurrency platform operators are not subject to domestic regulatory frameworks. As a result, if a platform goes bankrupt, halts operations, or unilaterally suspends trading, investors may find it challenging to seek recourse under domestic law. Authorities also face difficulties in verifying whether customer deposits are being properly safeguarded.
The financial authorities stated, 'We will closely monitor the status of products linked to the Korean stock market launched by offshore platform operators and their impact on the domestic market. If illegal business activities by offshore platform operators are discovered, we will respond decisively, including reporting to investigative agencies.'
* This article has been translated by AI.
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