A leveraged ETF is a bet two friends might make: whatever one of them earns today, the other doubles — and whatever they lose today, the other doubles that too. Every morning, they tear up yesterday’s deal and sign the exact same one again.
On July 7, South Korea’s KOSPI index fell 4.91% in a single session, triggering a circuit breaker that froze all trading for 20 minutes — even after Samsung Electronics posted record quarterly earnings. One analyst at Kiwoom Securities pointed to a specific culprit: single-stock leveraged products were amplifying the sell-off rather than absorbing it.
Here’s the mechanism. Say you put in 1 million won, and the fund buys 2 million won worth of stock (your money plus borrowed money) to hold exactly a 2x position. If the stock rises 10%, your holdings grow to 2.2 million won — but your own equity also grew 2x as fast, from 1 million to 1.2 million won. To keep tomorrow’s position at exactly 2x that new equity, the fund needs 2.4 million won worth of stock. It only holds 2.2 million, so it buys more.
Now flip it. If the stock falls 10%, holdings drop to 1.8 million won, and equity falls to 800,000 won. To stay at 2x, tomorrow’s target is only 1.6 million won — less than the 1.8 million currently held. So the fund sells.
That’s the trap. On a down day, the fund doesn’t just track the loss — it sells into it, because the math resets every single day regardless of what happened yesterday. Multiply that by thousands of leveraged positions trading the same handful of stocks, and you get exactly the kind of accelerant Kiwoom’s analyst described today.
Double up, double down.
Not advice. Just how I see it.