Retail Investors Rush Into 'Professional Investing' Amid Bull Market... Forced Sell-Offs Surge 13-Fold, Worsening Losses

Individual Professional Investors Grow by 17% in Seven Months
"Regulators Must Not Overlook This Warning Sign"

The number of individual professional investors surged in the first half of this year as the KOSPI continued its bull run. However, with the scale of leverage-based investments growing and market volatility intensifying, forced sell-offs have also soared.

According to data submitted by Sung-hoon Park, a member of the National Assembly's Political Affairs Committee from the People Power Party, to the Korea Financial Investment Association, as of the end of July this year, the total number of domestic individual professional investors stood at 26,282, as reported by Yonhap News Agency. This marks an increase of 3,787 people, or 16.8%, compared to the end of last year, when there were 22,495—meaning this growth occurred in just seven months.

An individual professional investor is defined as a private investor who has certain investment experience and meets at least one of the requirements regarding income, assets, or expertise. Recognition is granted after passing a securities firm's review.

Once registered as an individual professional investor, a person gains access to a variety of products unavailable to ordinary individual investors. For example, contracts for difference (CFDs), a representative high-risk product, become available for trading after a certain training. In addition, some financial products relax restrictions such as the minimum investment amount or investment ceiling for professional investors.

Photo by The Asia Business Daily Database

The number of domestic individual professional investors peaked at 26,672 at the end of 2022, then plummeted. By the end of 2024, it had dropped to 20,820. However, after the KOSPI turned bullish in April last year, the total rebounded to 22,495 by year-end, and continued momentum in the first half of this year fueled even faster growth.

However, this year, the practice of leverage-based investment—so-called "leverage investing"—spread sharply in the domestic stock market, and the steep market downturns in June and July intensified the shock. Data submitted by Assemblyman Park to the Financial Investment Association shows that, in July, average daily forced sell-offs related to margin and collateral-backed loans at ten domestic securities companies reached 2,258 accounts and 43.868 billion won, respectively. Compared with the same period last year, the number of accounts was up by 3.6 times, and the average daily forced sell-off amount soared 13-fold.

A forced sell-off occurs when a securities company is compelled to dispose of a client's stocks because the client's collateral ratio falls below the required level, often due to a share price decline and the client's inability to repay borrowed funds.

Assemblyman Park stressed, "The almost 3,800-person increase in individual professional investors in just seven months is a signal that financial regulators must not take lightly. We must not allow the label of 'professional investor' to be used as a means to undermine investor protection or as a loophole to circumvent regulations on the sale of high-risk products."

He further emphasized, "Rather than shifting risk onto individuals under the pretext of broadening investment choices, regulators should quickly establish highly effective investor protection measures to prevent forced sell-offs and a chain of losses."

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