As the Middle East war has driven sharp volatility in domestic and overseas stock markets this month, Korean retail investors trading U.S. stocks have been found to have concentrated on buying triple-leveraged products. The move is seen as a strategy to buy when prices plunge and reap outsized leverage gains on a rebound.
According to the Korea Securities Depository (KSD) on the 31st, from on the 1st to on the 30th (based on settlement date), domestic investors were net buyers the most of the exchange-traded fund (ETF) "Direxion Daily Semiconductor Bull 3X" (SOXL), which triples the performance of the U.S. semiconductor index, at 1.5919 trillion won.
No. 2 was "Direxion Shares ETF Trust Daily MSCI South Korea Bull" (KORU, 319.1 billion won), which triples the performance of the Korea stock market, and No. 3 was "ProShares UltraPro QQQ ETF" (TQQQ, 310.8 billion won), which triples the Nasdaq 100 index.
Among the top 10 net buys, more than half were leveraged products, including "MicroSectors Gold Miners 3X ETN" (GDXU, 107.4 billion won), which triples gold mining-related stocks, and "ProShares Ultra QQQ ETF" (QLD, 112.0 billion won), which doubles the Nasdaq 100 index. Investors bought more than 2.3 trillion won worth of triple-leveraged products this month alone.
Even compared with the most purchased individual stock being the optical communication-related Opto Electronics (117.9 billion won), it is clear there is strong demand among investors for leveraged products. That is because when share prices surge and plunge depending on the Middle East situation, they can aim for large, one-shot gains.
However, leveraged products require caution because when prices repeatedly rise and fall, losses can grow due to a "negative compounding effect." Unlike other ETFs, they also carry relatively higher total fees, making them unfavorable for long-term investment.
The Financial Supervisory Service (FSS) issued a press release on the 18th, saying, "(For leveraged products) when the index repeatedly goes up and down, a negative compounding effect occurs that melts away investment principal," and noted, "It is not desirable to choose leveraged or inverse products for long-term investment purposes."