Binance Offers 150x Leverage on KOSPI, Sparking Capital Outflow and Volatility Fears

The world's largest cryptocurrency exchange, Binance, is now offering highly speculative derivative products that allow investors to leverage bets on the South Korean KOSPI index by up to 150 times. This move significantly surpasses the risk levels typically available through regulated domestic financial markets, raising alarms among industry observers.

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Binance is selling a futures product that allows leverage of up to 150 times on the KOSPI.

These new offerings include leveraged trading on a KOSPI-based ETF listed on the New York Stock Exchange, with leverage ratios reaching up to 150%. Binance has also increased the maximum leverage for products tied to major South Korean stocks like Samsung Electronics and SK Hynix to 50 times. These instruments enable investors to potentially amplify gains by 150% if the KOSPI rises by just 1%, but also risk losing their entire principal with even minor downturns.

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KORUUSDT is a high-risk product where a 1% rise in the KOSPI can lead to a maximum 150% profit, but even a slight drop can result in the loss of the entire principal.

Domestic investors can access these high-risk products by purchasing stablecoins like Tether (USDT) with South Korean won on local exchanges and then transferring them to Binance. This bypasses stringent domestic financial regulations that would prevent such leveraged trading. The sheer volume of trading in these products is substantial, with cumulative trading values reaching billions of dollars for some KOSPI and semiconductor-related instruments in late June.

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Concerns are emerging that price surges or drops in Binance's KOSPI-related products could increase volatility in the domestic market the following day, especially during night or holiday trading.

Industry insiders are concerned about the potential for increased volatility in South Korean stock markets, as price fluctuations in these offshore leveraged products could influence domestic trading, especially during non-trading hours. Furthermore, there are worries about capital outflow, as trading fees are collected by foreign exchanges, potentially shrinking domestic liquidity. The lack of consumer protection and regulatory oversight for these offshore transactions adds another layer of risk, particularly as financial authorities in countries like the U.S., Japan, and the UK have restricted their citizens' access to Binance.com.

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There are also concerns about the outflow of national wealth, as Binance collects transaction fees from domestic investors and shrinks domestic trading demand and liquidity.