Despite Stock Market Plunge, Fewer Retail Investors Face Forced Liquidation

Forced Sell-Offs Decrease Despite KOSPI Plunge in July
Securities Firms Preemptively Raised Margin Requirements to Curb Excessive Leverage

Despite the recent sharp stock market decline, there has been no increase in forced liquidation sales for individual investors. This appears to be because securities firms proactively raised margin requirements to better manage risks related to personal leverage (credit trading).

According to the Korea Financial Investment Association and Mirae Asset Securities on July 10, despite the KOSPI dropping by about 10% over two days on the 7th and 8th, the scale of forced liquidation sales (margin calls) by securities firms did not differ significantly from usual. On July 7, when the KOSPI plunged 4.91%, the amount of unsettled receivables from delegated trading—classified as ultra-short-term borrowing for investment—stood at 1.141 trillion won. Of this, forced liquidation sales totaled 32 billion won, accounting for just 2.2% of the total. This is significantly lower than the June average of 5.1%. It is also much lower compared to early last month, when the forced liquidation sales ratio to unsettled receivables soared to 10% during another sharp market drop.

Industry experts believe that, as market volatility increased, securities firms acted preemptively to raise margin requirements out of concern for individual investor losses, thereby curbing excessive borrowing for investment. Since July 1, Mirae Asset Securities raised the margin requirement for certain stocks from the previous 20-30% range to a uniform 40%.

Mirae Asset Securities explained that, at the time, the domestic stock market was experiencing higher volatility compared to the past, driven by market capitalization concentration in large semiconductor stocks, an increase in leveraged ETF assets, and wider swings in short-term prices. To guard against potential market shocks, the firm proactively adjusted the margin rates. Other major securities firms, including Kiwoom Securities, Korea Investment & Securities, and Meritz Securities, also raised their margin requirements, thereby restricting investors from taking on excessive leverage.

As a result, the scale of credit-based trading also declined. From January 2025 to March of this year, the monthly average for unsettled receivables from delegated trading was about 967.4 billion won. However, as the increase accelerated after March, the figure rose to 1.5632 trillion won in June. Yet, in July, unsettled receivables from delegated trading appear to have decreased again to just over the 1 trillion won level.

Sukkyoon Kang, a researcher at Mirae Asset Securities, noted, "The recent lack of increase in forced liquidation sales among individual investors is largely due to the higher margin requirements imposed by securities firms. When the margin rate was 20%, investors could leverage up to five times their own capital, but once it was raised to 40%, only 2.5 times leverage was possible, which naturally led to a decrease in credit-based investments."

Kang further explained, "The higher the margin requirement, the greater the proportion of investors' own capital, which reduces the leverage effect, lowers the likelihood of unsettled receivables, and decreases the risk of forced liquidation sales. This is an important decision for investor protection."

This content was produced with the assistance of AI translation services.