SEOUL, July 20 (Reuters) – Lee Seung-ho watched the nearly 300 million won ($202,515) stock trading fortune he built with a 500% margin loan evaporate in just four weeks in May, but he plans to borrow again and return to the market the moment he has enough capital.
The 24-year-old South Korean university student in Seoul briefly turned the 20 million won he saved during mandatory military service into a 15-fold windfall, all by tapping a "tiny circle button" on his trading app that instantly unlocked five-times leverage.
Violent swings in South Korean stocks triggered a cascade of forced liquidations by his brokerage, wiping out the gains. Within weeks, his account had fallen below his initial investment, leaving him under such strain that he said: "I literally could not breathe."
"But I'm sticking to margin loans," Lee said from his studio apartment, barely larger than a parking space, next to an empty Hibiki whisky and an unboxed electric fan gifted by his brokerage after he qualified as a VIP client.
Lee's ability to take on a 500% margin loan, and the spectacular boom-and-bust that followed, captures the risks at the heart of South Korea's deeply leveraged retail investing culture – a trend that has regulators frantically sounding the alarm to contain what they see as an increasingly dangerous trading frenzy.
The Kospi, which recently reigned as the world's best-performing stock index after more than doubling in just six months, has since lurched violently, plunging more than 10% several times in a matter of weeks.
For many young South Koreans, the allure of leverage is rooted in a harsher reality beyond the trading screen. With Seoul apartment prices averaging about 14 years' worth of salary, young graduates feel locked out of traditional wealth accumulation, leaving the high-leverage stock app as their only economic equalizer.
"Since stocks are volatile assets, that volatility, if it moves upward, allows for rapid wealth creation," Lee said. "If I add five times leverage, I can build wealth five times faster than others," he added, when asked why he would take on more debt despite the stress he had endured.
Lee's ultimate goal is to buy an apartment in Seoul, hopefully before he can be happily married with "a son and a daughter, one day."
According to the Korea Financial Investment Association, margin loan balances in the domestic stock market reached 38.63 trillion won on June 24, the highest level on record. As of July 15, balances were 34.37 trillion won.
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