South Korea Tightens Leverage Rules, Requires Five Days of Paper Trading From Aug. 19

Retail investors seeking first-time exposure to single-stock leveraged products listed in South Korea or overseas must complete at least five trading days and five hours of paper trading starting Aug. 19.

The Financial Services Commission said on Aug. 12 that the paper-trading program now required for futures and options trading and short selling will be expanded to domestically and overseas-listed single-stock leveraged investments from Aug. 19. Individual retail investors making new investments in those products must complete the simulation before they can trade.

The paper-trading service is available free of charge on the Korea Exchange website. Investors are given virtual funds and trade at live market prices.

To invest in leveraged products, investors must complete paper trading over at least five trading days, spending at least one hour on each day. Total trading time must come to at least five hours. The FSC said single-stock leveraged products can post losses even when the underlying asset moves sideways because of negative compounding. The simulation requirement is intended to let prospective investors experience that effect before making investment decisions.

The government already tightened investment requirements for single-stock leveraged products on July 31, including raising the minimum deposit to 30 million won ($21,700). With the additional measure, new investors in leveraged products must complete all prerequisites, including one hour of basic training, two hours of advanced training and the paper-trading requirement.

Trading value in domestic single-stock leveraged products has plunged since the minimum-deposit rule was strengthened. The FSC said turnover dropped to 700 billion won ($507 million) on Aug. 11 from 12.4 trillion won ($9.0 billion) on July 30.