Ahead of introducing measures to protect investors in overseas high-risk products, the Financial Supervisory Service urged individual investors not to take on excessive risk by investing in overseas high-risk products during periods of heightened volatility.
The Financial Supervisory Service (FSS) said on the 14th that, starting on the 15th, a system requiring pre-investment education and simulated transactions will take effect to protect individual investors in overseas high-risk products.
After the system takes effect, for overseas derivatives, investors must complete at least one hour of pre-investment education and at least three hours of simulated transactions, and for overseas leveraged exchange-traded products (ETP), they must complete one hour of pre-investment education.
According to the Financial Supervisory Service (FSS), individual investors in overseas derivatives markets are posting large losses averaging 449 billion won per year regardless of market conditions.
When U.S. stocks fell sharply in 2022, losses reached 457.4 billion won, and individual investors still failed to lock in gains in the rising markets of 2023 (-445.8 billion won) and 2024 (-360.9 billion won). This year, through on the 10th, losses came to 373.5 billion won.
Overseas derivatives are high-risk products that can incur losses exceeding principal, and overseas leveraged ETPs can suffer large losses over short periods. In addition, for leveraged ETPs, while outsized returns may be expected in rising markets, losses can widen in falling markets due to the "negative compounding effect."
More than 80% of overseas derivatives transactions are by individual investors, and trading tends to become more active in volatile markets. In particular, the size of overseas leveraged ETPs held by domestic investors has surged every year since 2020, reaching a record high of 19.4 trillion won at the end of Oct.
An official at the Financial Supervisory Service (FSS) said, "For overseas derivatives such as futures and options, if an investor does not meet a margin call or if intraday prices swing sharply, forced liquidation may be executed without the investor's consent," adding, "Investors should also be mindful of the possibility of losses from unexpected exchange-rate moves."
The official also emphasized the need to avoid being swayed by excessive events and advertising by financial companies and to invest only after fully understanding product structures and risks.
Going forward, the Financial Supervisory Service (FSS) plans to continuously review the overall state of investor protection management systems at securities firms and others related to overseas high-risk products.
An official at the Financial Supervisory Service (FSS) said the agency will closely monitor trends in individuals' investments in overseas high-risk products and take swift response measures, including issuing consumer alerts when necessary.