South Korea ETF Crash: The temptation to double or triple your money in the stock market in a short period of time can be overwhelming. There is a news from the South Korean market that has shaken small investors around the world. There, the general public placed heavy bets on the two major companies that make computer chips. As a result, his 14 thousand crore rupees ($1.7 billion) was completely lost within a few months.

According to information from the office of South Korean MP Choi Eun-seok, between May 27 and August 14, clients of 10 major brokerage firms suffered heavy losses. All these people were investing in a special product called ‘Leveraged ETF’. As long as the market went up, everyone was happy. As soon as the market fell, people’s pockets became empty.

The Mathematics of Leveraged ETFs

Leveraged ETFs are very easy to understand. This is a fund that promises to double (2x) or triple (3x) a day’s profit of a stock. If the stock rises 2% today, this fund will give you a profit of 4% or 6%. This sounds great, but there is a big catch hidden in it.

According to a report in Mint, Siddharth Sogani Jain, head of Blue Aster Capital and Crabeco Global, says that these funds operate on a daily basis. This is called ‘Daily Reset’. That is, every evening the counting of votes is stopped and the counting of votes starts afresh the next day. If you buy it and sit for a long time, it will not give you double profit at the end of the month.

Let us understand this with a very simple example. Suppose a stock rises by 5% on one day and falls by 5% on the next day for 10 consecutive days. After the completion of 10 days, the stock will remain only 1.2% below its old price. That is, no major damage has been done. But if you had taken the 2x ETF, it would have fallen by about 4.9%. Had the fund taken 3x, it would have lost around 11%. Shares stayed the same, but the three-time fund lost nine times as much money.

It is more difficult to compensate for this loss. If the fund falls 82%, it would have to rise 456% to get back to its original position. It is almost impossible to get such a big lead in the market.

How did South Korea suffer so much?

People in South Korea were crazy about artificial intelligence (AI). Small investors there invested about $9.4 billion in these risk funds. The biggest mistake was that 92% of this money was invested in just two companies – Samsung Electronics and SK Hynix. People thought that these chip companies would never go bankrupt.

But in the month of July, the wind started blowing. SK Hynix shares fell about 35% and Samsung shares fell about 21%. The drop in common stocks was still manageable, but the doubling and tripling funds saw volatility. As of July 29, the largest 2x fund linked to SK Hynix had fallen 82% from its June high. In no time people’s hard earned money disappeared.

Government officials woke up after the loss

Market officials in South Korea woke up as the water rose. He tightened the rules for investing money in these products. Where previously one could start trading by depositing 10 million won, the limit has been increased to 30 million won. In addition, it was made mandatory for new investors to undergo training and learn from fake deals.

Due to stricter regulations, trade decreased, but by then it was too late. In August alone, Samsung and SK Hynix withdrew around $1 billion from this fund. Siddharth Sogani Jain says that rules are always made when people have already been harmed.

Big financial companies use this fund only for two-three days. She invests a very small part of her total money in this and keeps an eye on the screen every minute. These products become most lethal when:

1. People keep it with them for months
2. When the shares have gone up a lot and then they should be bought
3. When the borrowed money is invested
4. When a person invests all his savings only in this
5. A simple rule of thumb is that if you can’t look at your screen every day, you shouldn’t buy these things.

A big lesson for Indian investors

This is not just a South Korean story, Indian investors also have a lot to learn from it. In India, people place similar bets in Futures and Options (F&O). There is also investing a little money to make a big deal, which is called leverage.

A SEBI report shows that in the year 2025, over 91% of India’s derivatives traders suffered heavy losses. The total loss of these people has increased by 41% to about Rs 1.06 lakh crore in a single year. Apart from this, there are many Indian apps these days, through which people have started depositing money even in such dangerous funds of America.

Siddharth Sogani Jain clearly says that even if you think AI or chip companies will go far, don’t invest in such double-triple funds. If you want to make money in the long term, buy shares of good companies directly or stay in common mutual funds. If you get caught in the cycle of these funds resetting every day, you will also lose your original capital.