‘Big win’ targeted by Korean individual investors…Despite being burned for 5 years, they do not stop high-risk betting

Seohak ant addicted to high-risk investment (Source: Maeil Business Newspaper)

While domestic and international stock markets are struggling to find a clear direction, Seohak ants who are going 'all-in' on high-risk leverage products are surging again. In particular, trillions of won are being flowed into overseas ETFs that track the 2-3 times yield of highly volatile assets such as Tesla, Nvidia, and Ethereum, and the resulting losses for individual investors are reaching trillions of won each year.

According to data from the Korea Securities Depository on the 26th, 9 out of the top 50 overseas stocks net purchased by domestic investors this year were leverage exchange-traded products (ETPs). The net purchase amount alone reached a total of 3.36 billion dollars (approximately 4.5 trillion won). The most popular product among them was 'Direxion Daily Tesla Bull 2X', an ETF that tracks Tesla's daily stock returns by double. A whopping 1.63 billion dollars' worth was sold, making it the most purchased stock after Tesla’s main stock.

Other top net purchases included 'SOXL', which tracks the semiconductor index by three times, Ethereum leveraged products, and Nvidia 2X ETFs. It is a structure that adds leverage to high-risk assets such as big tech, cryptocurrencies, and semiconductors.

In addition to leverage ETPs, the number of individual investors turning their attention to overseas futures and options products is also increasing. According to the Financial Supervisory Service, last year's overseas derivatives transaction amount was a whopping 1,607 trillion won. This has nearly doubled compared to 2020 (628.2 trillion won) in four years. Nasdaq 100, Micro Nasdaq 100, and gold futures were mainly traded, and the ability to leverage 20 to 30 times with small margins acted as an attraction.

However, only a very small number of investors make profits. The losses incurred by individuals in overseas derivatives since 2020 are around 400 billion won annually. The loss last year was 389.9 billion won.

Experts point out that the structure where individuals repeatedly dive into high-risk overseas products causes continuous losses. Hwang Se-woon, a research fellow at the Capital Market Research Institute, said, "Overseas derivatives have many market variables and high price volatility, but individuals have poor access to information and it is difficult to design risk distribution," adding, "It is a structure that is difficult to make profits."

In particular, leverage products have a structure where losses accumulate over long-term holdings due to the 'negative compounding effect'. The faster the market volatility increases, the faster the losses accumulate, which is even more disadvantageous in the current market, where adjustments are repeated.

The financial authorities have decided to put a brake on such high-risk betting. From December, individual investors who want to invest in high-risk overseas products must complete prior education (up to 10 hours) and simulated trading (up to 7 hours). The course completion standards vary depending on age, investment experience, etc., and this measure is aligned with the regulation level of domestic derivatives products.