In 24 days, the South Korean stock market plummeted 27% from its historic peak. 1.2 million retail investors received margin call notifications. 360,000 accounts were forcibly liquidated. Here is the story behind it and what every investor should know.
Background: The Biggest Bull Market You May Have Never Heard Of
The KOSPI index ended 2025 at 4,214 points. By June 19, 2026, it hit an all-time high of 9,385 points during trading. In less than six months, the increase exceeded 100%—surpassing the historical records of the internet bubble era and the industrial boom of the 1980s.
The driving forces behind this were only two stocks: Samsung Electronics and SK Hynix. Together they accounted for about 45% to 50% of KOSPI's total market capitalization, contributing approximately 75% of the annual gains. SK Hynix had just announced a 72% quarterly operating profit margin—the highest in the history of the semiconductor industry. Goldman Sachs repeatedly raised its KOSPI target, ultimately bringing it to 12,000 points, predicting a 300% profit growth for South Korea in 2026.
This was a decade-only bull market. Then, it broke.
The Problem: An Astonishing Scale of Borrowed Funds Entering the Market
South Korean retail investors did not just buy into this market rally; they borrowed money to do so.
The price of an apartment in Seoul is roughly equivalent to 14 years of a typical salary. For many young South Koreans with no other upward mobility options, the stock market is the only avenue for leapfrogging. As the prices of Samsung and SK Hynix tripled, the fear of missing out turned from mere emotion into a matter of fate.
By June 24, the balance of margin financing set a historic record of 38.63 trillion won—about 25 billion dollars in borrowed funds, mostly concentrated on these two stocks. The average leverage ratio for retail investors was about 3 times. On May 27, 16 leveraged ETFs tracking Samsung and SK Hynix were issued, selling out immediately upon launch.
It was a powder keg ready to explode: two stocks dominated half of the index’s market value, with billions in concentrated loans, compounded by 2x leveraged products, behind which were millions of retail investors who had never witnessed the other side of leveraged trading.
The Catalyst: Four Events Happened Simultaneously
Regulators expressed regret publicly. On June 22, the head of the Financial Supervisory Service of South Korea openly stated regret over the approval of these leveraged ETF products. The market reacted immediately. The next day, some ETFs plummeted 25%, triggering a circuit breaker on KOSPI.
MSCI denied inclusion on the watch list. South Korea failed to make it onto the MSCI developed markets watch list as of June 2026, eliminating the only structural catalyst that had attracted a massive influx of foreign funds.
The crash on July 13. SK Hynix’s ADR was listed on Nasdaq on July 10—raising $26.5 billion, with a subscription multiple of 7 times, opening at $170, above the issue price of $149, closing at $168.01. Three days later, a brokerage report questioned whether SK Hynix could meet quarterly profit expectations, compounded by a wave of profit-taking from investors who had pushed the stock price up nearly 3 times; South Korean stocks suffered massive sell-offs. On July 13, SK Hynix fell 15.37%, marking the largest single-day drop since its listing, even surpassing the maximum single-day drop of 14.93% during the 2008 financial crisis. Samsung Electronics fell 10.70%. KOSPI plunged 8.95%, triggering a 20-minute trading suspension across the market. The market experienced seven full market circuit breakers in a year, exceeding more than half of the total number of activations since the mechanism was established in 2000 (13 times).
The central bank raised interest rates. Three days later, on July 16, the Bank of Korea raised rates for the first time in three and a half years, increasing by 25 basis points to 2.75%. Inflation had risen to 3.2%, far exceeding the 2% target, driven mainly by rising oil prices and strong revenues from semiconductor exports. All seven members of the monetary policy committee voted unanimously for the rate increase, expecting year-end rates to reach 3%. Higher borrowing costs weighed heavily on a market already in a freefall due to forced liquidations.
Chain Reaction: How 360,000 Accounts Were Liquidated
Once prices started falling, the spiral of margin calls became unstoppable.
Falling prices triggered margin calls, which led to forced liquidations; forced liquidations pressured prices lower, causing prices to fall again and trigger further margin calls. The daily rebalancing mechanism of the 2x leveraged ETFs exacerbated the situation—it required selling even as prices were already falling, automatically amplifying declines at the worst moments for the market.
Over 1.2 million accounts hit margin call thresholds, with 360,000 being forcibly liquidated. The forced liquidation rate soared from an average of 2.1% over the past six months to over 10%. In just two and a half months, the total amount of forced liquidations reached 2.3 trillion won.
Some investors shared screenshots showing daily losses of about 2.1 billion won, equivalent to about $1.4 million, stating they still planned to borrow more to enter the market.
Regulatory Response
The Financial Services Commission raised the minimum margin threshold from 10 million won to 30 million won, halted new leveraged ETF listings, and mandated that margins must be deposited in cash, not compensated with stocks or bonds. The four major economic regulatory agencies held an emergency joint meeting on July 14.
The Financial Supervisory Service acknowledged that some products were "approved too hastily." This statement from the financial regulator is quite rare.
What This Means for SK Hynix and SKHY
The fundamental business of SK Hynix has not changed. The operating profit margin for Q1 2026 was 72%, and the market forecast for Q2 operating profit reaches 60 trillion to 65 trillion won, which could set new records. The demand for HBM remains structurally strong.
What collapsed was the leveraged structure built on these fundamentals. The SKHY listed on Nasdaq is unaffected by the dynamics of South Korean financing or the daily rebalancing pressure from leveraged ETFs. American investors holding SKHY face risks from SK Hynix's business performance and the exchange rate risk of the dollar against the won— not the specific leverage mechanisms that turned a fundamental story into a margin call crisis.
After the crash, the forward P/E ratio of KOSPI has dropped to about 6 times, close to the lows seen during the 2008 financial crisis. Whether this is an opportunity or a value trap depends on one core question: will the AI memory demand cycle continue, or will it peak before the leverage positions have fully unwound?
Five Lessons Every Investor Should Remember
The amplification of leverage on gains and losses is reciprocal. A 3x leveraged position encountering a 27% drawdown means an 81% loss before forced liquidation. Incredible gains achieved through leverage over months can be completely wiped out in just days.
The risks of concentrated holdings can compound rapidly. The two stocks contributed 75% of the index's gains, meaning that any negative news from either one can turn into a market-wide event. Diversified investment is not just talk.
Forced liquidations ignore fundamentals. Once a chain reaction is started, whether SK Hynix is a quality company becomes irrelevant. Brokerages automatically liquidate. Prices are determined by liquidity, not value.
Regulatory approval does not equal suitability for retail investors. These ETFs were approved and officially listed, appearing no different from regular mutual funds on brokerage apps. Regulator's public admission of regret should serve as a permanent reminder.
Market tops always seem to extend. In June, KOSPI set new highs almost every day. There were no clear signals indicating that June 19 was a top. Never has there been. This is the most dangerous aspect of leverage—it deprives you of the ability to wait.
At the same time, it reveals the inherent flaw of linear leverage: uncontrollable downside risk. Once margin calls are triggered, the threat of forced liquidation arises. Experienced players in the industry are more accustomed to using options for "controlled risk, upside rewards" asymmetrical betting. To help investors cope with complex market conditions and the turbulence of earnings season, the BIT US stock platform has officially launched options trading this week. Options are fully integrated with the underlying stock ecosystem, allowing investors to even use the financing limits of the underlying stock to purchase options, greatly enhancing liquidity and hedging efficiency. Completing your first options trade or inviting friends can earn you multiple early bird rewards, including free real-time quotes, popular stock offerings, and more (for further details, refer to the US stock channel X:@BITstocks_CN). Smart investors never blindly bet on one side amidst wild market fluctuations, but understand how to use tools to secure their safety thresholds.
The information above is as of July 23, 2026. Past market performance is not indicative of future results. This report is for general informational purposes only and does not constitute any financial advice, nor a recommendation to buy or sell any securities.
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