Wall Street warns of leverage risks following South Korean margin calls

Wall Street analysts are monitoring the South Korean stock market as a cautionary case study regarding the risks of high leverage and short-term trading. Recently, over 1.2 million trading accounts in South Korea faced margin calls following a sharp decline in memory semiconductor stocks, including Samsung Electronics and SK Hynix.

Experts warn that the combination of leveraged ETFs—which multiply the daily returns of underlying assets—and increased retail participation can create a feedback loop. While leverage accelerates gains during bull markets, it can trigger a cycle of price drops, margin calls, and forced liquidations during downturns, significantly amplifying market volatility.

Although the scale of liquidation in the U.S. market may differ, analysts note similar structural risks due to the rapid growth of leveraged ETF assets and concentrated positions in AI-related sectors. Financial authorities in South Korea have already begun considering measures to restrict access to certain leveraged products and strengthen cash margin requirements to prevent future instability.