Korean Investors Use Offshore Crypto Exchanges to Leverage 150 Times

JAKARTA - Korean investors can now bet on the direction of domestic stocks through foreign crypto exchanges with no small risk. New products offered by a number of platforms allow profits or losses to move up to 150 times the daily movement of the Kospi index.

Korea JoongAng Daily, quoted Thursday, July 2, reported that Binance and several foreign crypto exchanges have begun to launch derivative products related to Korean stocks since last month. Authorities highlighted the ease with which ordinary investors can access these highly risky products, even though the platform is outside the protection of Korean regulations.

The most striking product is a KORU-based perpetual futures contract with leverage of up to 50 times. Leverage is the use of borrowed funds or transaction leverage to enlarge investment positions. KORU is an ETF listed in the United States and follows the three-fold daily yield of the Kospi index.

Therefore, if KORU is given 50 times leverage, the profit or loss movement can be enlarged up to 150 times the direction of the index.

Binance has been the most aggressive player. On June 2, the world's largest cryptocurrency exchange listed products with 20 times leverage on Samsung Electronics, SK hynix, and Hyundai Motor. On June 22, Binance launched the KORU product with 20 times leverage, then raised the limit to 50 times four days later.

"If you bet on a rise, even a 1 percent rise in the Kospi can theoretically increase the yield to 150 percent," Kim Min-seung, head of research at Korbit, told Korea JoongAng Daily. "However, if the market moves against your bet, there is a high risk of forced liquidation even with small price movements."

The risk is already visible. KORU plunged 35.7 percent in a day to 700.01 US dollars on June 23, after the Kospi fell 9.99 percent. Investor losses widened because KORU itself used a leverage three times the index movement.

Binance is not the only one. Bybit, OKX, and KuCoin also listed KORU products last month with leverage of 10 to 20 times. The problem is, all of these operators are outside the Korean investor protection system.

In South Korea, only 28 legal virtual asset service providers are operating after being registered with the Korea Financial Intelligence Unit or FIU. They must meet the requirements, including information security certification. Bithumb is included in the list. KuCoin has even been reported to law enforcement for operating without registering with the FIU.

The hole remains open. Korean investors can buy Tether or USDT stablecoins using won on domestic exchanges, then transfer them to foreign exchanges to trade. Stablecoins are crypto assets whose value is usually pegged to a certain currency, such as the US dollar.

According to Kim, this product does not directly buy or sell Kospi shares. However, trading takes place all the time and investors' bets on market ups and downs can affect sentiment both inside and outside Korea.

Korean market pressure is also seen from the surge in forced sales of shares. The Korea Financial Investment Association recorded forced sales due to unpaid securities margins of 1.12 trillion won or 719 million US dollars from June 1 to 30.

The figure rose 58.6 percent from 707.6 billion won in May. The amount was also double the 550.8 billion won in March, when the Middle East conflict shook the Korean market.