[ED] Risky “margin trading” – Korea Times



[ED] Risky “margin trading” – Korea Times

[ED] Risky “margin trading”

Taking loans to invest in stocks is no longer tenable

The country’s main financial regulator has issued a “cautionary” alert to consumers about the risks of “trading on margin”, the practice of borrowing money from a brokerage house and using it to buy securities. actions. The alert is the lowest among a three-step notification system – caution, warning and danger – but this is the first time the Financial Monitoring Service (FSS) has sounded the alarm on the purchase margin.

Investors began to mass buy stocks using borrowed money last spring. As liquidity became plentiful following the Bank of Korea’s interest rate cuts to deal with the fallout from the COVID-19 pandemic, investors rushed to buy huge amounts of shares with borrowed money. The outstanding margin on margin trading nearly quadrupled from 6.6 trillion won ($ 5.5 billion) at the end of March last year to 25.7 trillion won as of September 13 in what appears to be a unprecedented enthusiasm for investments.

What is surprising is that many investors don’t know how risky margin trading can be. Buying on margin is very tempting because of the potential for higher returns. But margin trading is a form of leverage, so the losses can be huge if the investment doesn’t go as planned. In fact, the monetary amount of daily forced liquidations more than doubled from 4.22 billion won in July to 8.48 billion won in August, when stocks remained broadly low.

In a financial stability report on Friday, the central bank hinted at another hike in interest rates to deal with worsening financial imbalances. Next month, financial authorities also plan to announce additional measures to control household debt, which could make it increasingly difficult for individual investors to borrow money for equity investments. In addition, FSS Governor Jeong Eun-bo urged the nation on Tuesday to prepare for an economic “perfect storm”, citing a mix of financial risks associated with corporate and personal insolvency and corporate bubbles. asset prices. All things considered, taking out loans to invest in stocks or real estate is no longer sustainable.



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