This past March, many investors who used credit to buy stocks faced significant losses amid a sharp market downturn. An analysis of 4.6 million trading accounts revealed that investors using leverage, a practice known in Korea as 'Bitoo' (debt-fueled investment), saw an average return of -19.0%, a stark contrast to the -8.2% loss for those who didn't borrow.
The chain of events began with an external shock. In early March, geopolitical tensions flared in the Strait of Hormuz, a critical channel for global oil supply. Shipping traffic plummeted, and crude oil prices shot past $90 per barrel. For South Korea, a nation heavily reliant on imported oil and driven by exports, this created a sudden and severe economic burden. This concern triggered a massive sell-off by foreign investors, causing the Korean won to weaken and putting immense pressure on the stock market.
This external pressure hit a market that was internally vulnerable. Over the previous year, a bull market had encouraged individual investors to take on record levels of debt to invest, pushing credit loan balances to an all-time high of over 32 trillion won. When the KOSPI nosedived—falling 7.24% on March 3rd and a historic 12.06% on March 4th—this high leverage became a trap. The steep decline triggered automated margin calls, forcing brokerages to sell their clients' shares to cover the loans. This wave of forced selling added more fuel to the fire, creating a vicious feedback loop that deepened the crash and amplified investors' losses.
Even a brief, sharp rebound on March 5th (+9.63%) couldn't undo the damage. In fact, this extreme volatility created a 'whipsaw' effect, inflicting further losses on traders trying to time the market. The final tally showed the painful cost of leverage: the -19.0% average loss for 'Bitoo' investors was 2.3 times worse than for their unleveraged counterparts. The situation was even more severe for investors in their 20s, whose loss gap was 3.2 times larger.
In response, the government prepared a market stabilization fund of over 100 trillion won to act as a safety net, and financial regulators issued strong warnings about the risks of leverage. While these measures helped prevent a systemic collapse, they came too late to protect those already caught in the March sell-off.
- Glossary -
- Bitoo: A Korean neologism that translates to "debt-fueled investment." It refers to the practice of borrowing money, often through credit loans from brokerages, to invest in stocks.
- Margin Call (Forced Liquidation): A demand from a brokerage for an investor to deposit additional money or securities so that the margin account is brought up to the minimum maintenance margin. If the investor fails to do so, the brokerage can forcibly sell their securities to cover the loan.