Korean individual investors reduced their "ammunition depot" by 3.4 trillion Korean won in one month.

With the South Korean composite index rapidly dropping from 9200 points to 6800 points over the past four weeks, the question of how long South Korean retail investors can hold on has become a key indicator to measure whether the "AI bull market" is still alive. According to data updated by the Korea Financial Investment Association on the 13th, the trading volume of forced sales by securities companies on the 10th of this month remains high at 81.6 billion Korean won. Coupled with the forced liquidation data of 142.1 billion Korean won the previous day, the total forced liquidation trading amount in the first 8 trading days of July has reached 425.8 billion Korean won. As a reference, in June this year, the total amount of stocks forcibly liquidated by securities companies for South Korean retail investors exceeded 1.1 trillion Korean won, an increase of 58.6% from May, reaching a new high for the year. The bigger issue is that with the South Korean composite index plummeting by 8.95% on Monday, Samsung Electronics and SK Hynix also plummeted by 10.7% and 15.37% respectively. If there is no significant rebound in the market on Tuesday (note: the deadline for securities companies to provide additional margin to retail investors is generally one day), the pressure for forced liquidation after the market opens on Wednesday may reach another peak. At this critical juncture, US President Trump announced on Monday that he will "reimpose sanctions on Iran" and will also levy a "20% toll" on other shipping through the Strait of Hormuz, further burdening South Korean retail investors. As expected, the Bank of Korea will also raise interest rates later this week, further testing the resilience of South Korean retail investors. A more troubling signal is that in the past few months, the ammunition that retail investors have used to prop up the South Korean stock market against foreign and institutional selling pressure has been dwindling. Similarly, based on data from the Korea Financial Investment Association, as of the 10th, the standby funds in retail investors' securities accounts have dropped to 105 trillion Korean won, a decrease of 1.5 trillion Korean won from the previous day, the lowest level since February 20th . Compared to the historical high value in early June (139.69 trillion Korean won), it has decreased by 34 trillion Korean won in just one month. Why are South Korean retail investors susceptible to forced liquidation? In fact, the financing and forced liquidation mechanisms of the South Korean stock market are not much different from major markets globally, the issue lies in the extreme volatility of the South Korean stock market. Taking June, which set a record for forced liquidation this year, as an example, the South Korean market triggered the "sidecar" mechanism 10 times throughout the month (Kospi 200 index futures rose or fell by 5% for 1 minute each time), with 5 times each for buying and selling "sidecars". In addition, the market as a whole experienced 3 circuit breakers (KOSPI index fell by more than 8% for 1 minute). Since the introduction of this mechanism in 2000, including this Monday, the KOSPI market has experienced a total of 13 circuit breakers in its history, with 7 occurrences this year. According to calculations by South Korean media, when South Korean retail investors trade on margin, once they reach full leverage, a stock drop of around 20% is already on the verge of requiring additional margin/forced liquidation. Reportedly, as representatives of high-quality listed companies, the margin ratio for Samsung Electronics and SK Hynix is 45%. In other words, South Korean retail investors only need to provide 45 million Korean won in cash to buy 100 million Korean won worth of storage giant stocks. In addition, there is also a minimum guarantee maintenance ratio requirement in margin trading, which is roughly between 140%-150% depending on investor credit. Calculations show that with a guarantee ratio of 150%, the stock would only need to fall by 17.5% to trigger the procedure for additional margin; with a guarantee ratio of 140%, the stock would only need to fall by 23% to trigger the procedure. Considering that the price fluctuation limit in South Korea is 30%, margin trading stocks being chased for margin calls on the same day is not impossible. According to the forced liquidation procedure, once a retail investor's account reaches the lower limit of the guarantee ratio, the securities company will contact the investor to provide additional margin after the market closes, with a grace period generally lasting until midnight the next day. If the stock price rises significantly the next day, or if additional funds are provided, the position will be maintained; if neither of these things happens, the South Korean securities company will initiate forced liquidation at the opening on T+2. This article is reprinted from "Cai Lianshe", Author: Shi Zhengcheng; GMTEight Editor: Feng Qiuyi.