With leveraged ETFs restricted, Korean retail investors flock to high-risk contracts for difference (CFDs)

According to Golden Ten Data on July 23, citing Yicai, the Korean Financial Services Commission, the Ministry of Finance, and the Bank of Korea decided at a joint meeting on July 16 to tighten the margin requirements for single-stock leveraged trading in Korea, raising the minimum margin from 10 million to 30 million won, and only cash will be accepted as margin. However, risk-seeking retail investors are flocking to Contracts for Difference (CFDs). According to data from the Korea Financial Investment Association, as of Monday (July 20), the holdings of CFDs on the Korea Composite KOSPI Index have surged nearly two-thirds over the past year, reaching about 3.3 trillion won (2.2 billion US dollars), close to the peak, with leverage ratios potentially as high as 2.5 times. CFDs are financial derivatives settled based on the difference in the price of an asset, allowing traders to participate in market ups and downs without actually holding the underlying asset. They are widely used in equities, foreign exchange, indices, commodities, as well as cryptocurrency markets, and typically involve leveraging mechanisms to amplify trading exposure.