Retail investors in South Korea have reduced their ammunition reserves by 3.4 trillion Korean won in one month.

As the South Korean composite index rapidly fell from 9200 points to 6800 points in the past four weeks, the question of "how long can South Korean retail investors hold on" has become a key indicator to measure whether the "AI bull market" is still alive. According to data updated by the Financial Investment Association of South Korea on the 13th, the mandatory sell-out trading data for securities companies on the 10th of this month was still as high as 81.6 billion Korean won. Adding to the forced liquidation data of 142.1 billion Korean won the day before, the total forced liquidation trading amount for the first 8 trading days of July has reached 425.8 billion Korean won. As a reference, in June of this year, the total amount of stocks for South Korean retail investors forced liquidated by securities companies exceeded 1.1 trillion Korean won, a 58.6% increase from May, just setting a new high for the year. The bigger issue is that with the sharp drop of 8.95% in the South Korean composite index on Monday, Samsung Electronics and SK Hynix plummeted by 10.7% and 15.37% respectively. If there is no apparent 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 of forced liquidation after the market opens on Wednesday may reach another peak in recent times. At this critical moment, US President Trump announced on Monday to "re-impose sanctions on Iran" and impose a "20% toll fee" on other shipping traffic in the Strait of Hormuz, adding more weight on the shoulders of South Korean retail investors. Unsurprisingly, the Bank of Korea is expected to raise interest rates later this week, further testing the resilience of South Korean retail investors. Even worse, in the past few months, South Korean retail investors who have been supporting the South Korean stock market against selling pressure from foreign funds and institutions are also running low on the "ammunition" to defend against forced liquidation in their accounts. Also according to the Financial Investment Association of South Korea, as of the 10th, the standby funds in retail investors' securities accounts had dropped to 105 trillion Korean won, a decrease of 1.5 trillion Korean won from the previous day and the lowest level since February 20. Compared to the historical peak in early June (139.69 trillion Korean won), this amount had decreased by 34 trillion Korean won in just one month. Why are South Korean retail investors easily triggering forced liquidation? In fact, the margin trading and forced liquidation mechanisms in the South Korean stock market are not significantly different from major global markets, the issue lies in the extreme volatility of the South Korean stock market. Taking the record-breaking forced liquidation in June as an example, the South Korean market triggered a total of 10 "sidecar" mechanisms (Kospi200 index futures rose or fell by 5% and lasted for 1 minute) throughout the month, with 5 buy and 5 sell "sidecars". In addition, the entire market had experienced 3 circuit breakers (KOSPI index fell more than 8% and lasted for 1 minute). Since the introduction of this mechanism in 2000, counting this Monday, the KOSPI market has experienced a total of 13 circuit breakers in its history, already 7 times this year. According to calculations by South Korean media, when South Korean retail investors trade on margin, once leverage is maxed out, a 20% drop in stock price would already be near the edge of adding margin/reaching forced liquidation. It is reported that as representatives of premium listed companies, the margin ratio for Samsung Electronics and SK Hynix is both 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 stocks from storage giants. In addition, there is also a requirement for the lowest guarantee maintenance ratio in credit investments, roughly between 140% and 150% based on the investor's credit status. Calculations show that with a guarantee ratio of 150%, the stock only needs to drop by 17.5% to trigger the procedure of adding margin; with a guarantee ratio of 140%, the stock only needs to drop by 23% to trigger the procedure. Considering that the limit up/down in South Korea is 30%, buying stocks on margin and being pursued for margin call 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, securities companies will contact the investor to add margin after the market closes, with the grace period generally lasting until midnight the next day. If the stock price rises significantly the next day, or additional funds are added, the position will still be maintained; if neither of these things happen, South Korean securities companies will start forced liquidation at the opening of the second trading day. This article is reprinted from "Cailianshe", author: Shi Zhengcheng; GMTEight Editor: Feng Qiuyi.