As of July this year, the scale of forced sales by individual investors, known as 'debt investment,' has exceeded 4.8 trillion won. This figure is nearly double the total amount of forced sales recorded last year. This surge indicates a significant number of investors who borrowed funds to invest in stocks through margin trading and credit loans have faced forced liquidation due to insufficient collateral. If the trend continues, the total forced sales by the end of this year are expected to reach an all-time high. Experts warn that the risks associated with leveraged investments have escalated amid extreme market volatility.
On September 1, data submitted by the office of lawmaker Kang Jun-hyun from the Democratic Party revealed that from January to July this year, the total amount of forced sales resulting from margin trading, credit transactions, and collateral loans reached 4.819 trillion won. This is close to double the annual forced sales figure of 2.4642 trillion won recorded last year. In just seven months, this amount has surpassed the highest annual total in the past five years, which was 3.904 trillion won in 2021.
Forced sales occur when investors borrow funds from securities firms or purchase stocks on margin and are unable to maintain the required collateral ratio due to falling stock prices, leading the firms to liquidate the investors' stocks.
By type, forced sales from margin trading accounted for more than half of the total, amounting to 2.9281 trillion won, which is more than double last year's annual figure of 1.4152 trillion won. Forced sales from credit transactions and collateral loans also totaled 1.8909 trillion won, significantly exceeding last year's annual total of 1.0491 trillion won.
Many accounts have been liquidated with total losses. From January to July this year, 6,170 accounts were liquidated with total losses, amounting to 31.2 billion won, more than double last year's total liquidation amount of 15.3 billion won.
The sharp increase in forced sales is attributed to heightened market volatility this year. The KOSPI index has fluctuated by an average of 2.9% daily, nearly three times higher than last year's average of 1%.
Lawmaker Kang Jun-hyun stated, "The surge in forced sales is a warning signal that the risks associated with leveraged investments are increasing. Financial authorities should not view this solely as a personal responsibility of investors but should also examine whether there are factors encouraging excessive debt-driven investments and ensure that securities firms' credit provision and risk management systems are functioning properly."
* This article has been translated by AI.
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