Original Title: Wipeouts Threaten Korea Retail Army Chasing Riskiest Investments

Original Authors: Sangmi Cha, Haram Lim, Bloomberg

Original Translator: Luffy, Foresight News

At a textile company in Seoul, Tony Kim, a manager, goes all-in on a stock whenever he sees potential.

34-year-old Tony Kim has never held two stocks simultaneously in his 140 million KRW (approximately 98,500 USD) investment portfolio. The father of two says, "Koreans, including me, are obsessed with that dopamine rush feeling as if it's engraved in our genes."

Tony Kim

For many retail investors, this trading strategy may seem reckless or unusually resilient to pressure. But among around 14 million retail investors in Korea known as the "ant army," this is just a glimpse of their extreme eagerness for returns and continuously increasing risk appetite.

This eagerness has driven funds to pour into investment accounts at a near-record pace. Over the past five years, Korean retail investors have leveraged up, leading to a doubling of margin loan balances. They have heavily entered high speculative leveraged and inverse exchange-traded funds (ETFs), accounting for 40% of the total assets of some leveraged ETFs registered in the US. At the same time, trading volumes of high-risk cryptocurrencies have surged to historic levels.

These retail investors' frenzied trading has not only reshaped the market but also made them a significant political force. Their power and anxiety have been so intense that they have even forced the South Korean government to make policy reversals for the first time.

Currently, as the global market soars to historic highs due to the artificial intelligence infrastructure boom, highly leveraged Korean retail investors are in an extremely vulnerable position. Once market sentiment shifts suddenly, speculative positions could collapse instantly, and losses could be further amplified.

Such a reversal occurred just over a week ago. The escalation of the US-China trade dispute triggered a cryptocurrency crash, causing numerous altcoins to instantly go to zero. Korean retail investors are renowned for gambling on small-cap tokens. The prices of these tokens are highly volatile, with altcoins accounting for over 80% of the total trading volume on Korean cryptocurrency exchanges, while Bitcoin and Ethereum usually comprise over 50% of the global platform's trading volume, forming a stark contrast.

For many South Korean retail investors, all high-risk operations are aimed at one goal: accumulating enough wealth in the fiercely competitive market to buy their own home. South Koreans use the term "borrowed soul" to describe this struggle, a phrase that accurately reflects the emotion and economic pressure behind the dream of homeownership.

The recent policies of the South Korean government have further intensified retail investors' risky behavior. Measures such as the mortgage loan limit implemented by the new President Lee Jae-myung and the rise in rent caused by the lease market reform have made buying a home even more out of reach. Last week, the government introduced multiple measures to cool down the overheated real estate market, including tightening loan limits in the greater Seoul area and reducing the loan-to-value ratio of mortgaged properties.

"Our parents' generation accumulated wealth through the Han River miracle real estate boom, but our generation is not as lucky," said 36-year-old Kim Su-jin. She used to be a business consultant and started investing in cryptocurrencies with all her severance pay after resigning. "In my circle, about 30 people have already 'graduated'—meaning they have earned enough money and exited high-risk investments," she said. "I also hope to 'graduate' one day."

The Han River in Seoul

Buyer Beware

The momentum of South Korean retail investors chasing gains is evident in various markets. Since Donald Trump won the U.S. presidential election last year and began his second term, the trading volume of domestic cryptocurrency exchanges in South Korea has skyrocketed, at one point reaching 80% of the trading volume of the Korean benchmark stock index Kospi; stablecoins pegged to fiat currencies have also attracted a large amount of retail funds.

Investors have also been pouring into leveraged and inverse ETFs, products that amplify returns (and losses) by 2 to 3 times through derivatives. Due to strict regulations in South Korea, such as simulated trading drills and high margin requirements for these products, retail investors have turned to overseas markets and have now become significant participants in the global leveraged ETF market.

Comparison of South Korean cryptocurrency exchange trading volume and Kospi index trading volume

The high-risk behavior of South Korean retail investors not only puts household savings at risk but also puts pressure on the financial system, threatening overall economic stability. As investors flock to high-yield, high-risk assets, traditional financial instruments have gradually fallen out of favor, and banks' channels for funding have been squeezed. In the six weeks after July this year, major banks in South Korea lost nearly 40 trillion Korean won (approximately $281 billion) in deposits.

“In Korea, investment is often seen as gambling rather than long-term planning - almost as brutal as 'Squid Game',” said Choi Jae-won, an economics professor at Seoul National University. “Once the bubble bursts, individuals face a wealth backlash, leading to a worsening situation: personal loans crisis, decreased spending power, ultimately affecting the entire national economy.”

Regulatory agencies are also deeply concerned. “We worry that if the market collapses, it will have an impact on retail investors' assets and the overall economy,” said Lee Yoon-soo, a permanent commissioner at the Korea Securities and Futures Commission.

Psychiatrists point out that high-risk investments are increasingly taking a toll on individuals' mental health. “Without inherited wealth, an apartment in Gangnam (Seoul's affluent area) is a daydream,” said Park Jong-sik. Having lost around $250,000 due to investments, he now runs a clinic specializing in treating investment addiction patients. “In this anxiety-ridden society, even knowing the risks, people are still drawn to high-risk investments. It’s as if the whole system is pushing them forward, leading them into an anxiety-driven investment addiction cycle.”

Park Jong-sik

“Zeroed Overnight”

For some, the scars of an investment collapse are hard to heal. 35-year-old Han Jung-hoon went through the euphoria of “a 30-fold increase in the cryptocurrency wallet balance to 660 million Korean won,” but the Luna collapse in 2022 turned it all into nothing.

TerraUSD was a stablecoin project launched by South Korean Do Kwon, which ended in failure. In August of this year, Do Kwon pleaded guilty to fraud, and the project’s collapse wiped out about $40 billion in market value in just a few days.

“My 660 million won profit disappeared overnight, and in the end, I only got back less than 6 million won,” Han Jung-hoon said.

This collapse completely changed his life. Although he has not completely given up on cryptocurrency, he has moved away from high-risk investments, focusing on meditation, and even started a YouTube channel sharing his favorite breathing techniques. Today, he lives on the remote Jeju Island and occasionally goes on meditation trips to Bali.

Han Jung-hoon

Nevertheless, social media platforms like YouTube are still filled with bold investment success stories. Couples putting all their savings into Bitcoin, 27-year-old college students earning tens of thousands of dollars a month through high-frequency trading... These stories are exactly what attract investors like Tony Kim.

Tony Kim is currently fully invested in stocks of companies such as NVIDIA and Tesla. "I have made money through leverage, and that easy profit feeling got me hooked," he recalls. He remembers when he "made $13,000 overnight from $900," but lost all his gains in just three days. "You keep chasing that sensation of getting rich quick."

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