South Korean retail investors are ramping up positions in high-leverage Contracts for Difference (CFDs), lifting their total position size to 3.3 trillion won, while leverage risks in chip stocks have drawn attention.

South Korean retail investors are once again heavily buying high-leverage Contracts for Difference (CFDs). Data from the Korea Financial Investment Association shows that as of July 21, South Korea's CFD holdings have risen to approximately 3.3 trillion won (around $2.2 billion), an increase of nearly two-thirds from a year ago. Data shows that SK Hynix and Samsung Electronics have become the most concentrated leveraged betting targets for South Korean retail investors. Over the past year, SK Hynix's CFD holdings surged nearly 2500% to 235 billion won, while Samsung Electronics' CFD positions expanded to around 217 billion won, five times their level a year prior. CFDs allow investors to gain full exposure to underlying assets by posting only around 40% margin, without actually owning the underlying stocks. Analysts note that when market declines trigger margin calls, the spot stocks held by banks to hedge their risks may be sold off simultaneously, amplifying market volatility. The market is concerned that risks from CFDs, when combined with products like margin trading and leveraged ETFs, could trigger a chain liquidation effect during market corrections. The Korea Capital Market Institute stated that if a large number of leveraged positions are concentrated in the same direction and investors fail to meet margin calls, forced liquidations will further exacerbate market volatility. South Korea saw in 2023 a wave of concentrated liquidations in retail CFD positions, which caused multiple stocks to hit their daily limit declines in succession and prompted regulatory crackdowns. Analysts believe that as South Korean retail investors ramp up high-leverage trading again, similar risks are drawing market attention once more.