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Don't Invest Like You're at a Casino: YouTuber Warns of Leveraged Investment 'Liquidation' Risk
🇰🇷 South Korea /Economy & Trade

Don't Invest Like You're at a Casino: YouTuber Warns of Leveraged Investment 'Liquidation' Risk

From Dong-A Ilbo · () Korean

Translated from Korean, summarized and contextualized by DistantNews.

At a glance

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  • A South Korean financial YouTuber with over 1.14 million subscribers warned about the risks of leveraged investments.
  • The YouTuber explained that daily returns are amplified, leading to magnified losses and potential liquidation, especially in volatile or sideways markets.
  • Investors are advised to consider their risk tolerance and investment horizon, prioritizing long-term participation over rapid gains.

A popular South Korean financial YouTuber, known as 'Kimjjanbu' with over 1.14 million subscribers, has issued a stark warning against treating investments like a trip to the casino, particularly concerning the dangers of leveraged products.

You should not just look at the high profit potential of leveraged products, but fully consider the structure and risks of expanding losses.

— KimjjanbuWarning about the risks of leveraged investments.

In a recent video titled 'You Can Earn Double with ETFs? The Dangers of Leveraged Investment,' Kimjjanbu explained that while leveraged ETFs can amplify daily returns by two or three times, they equally magnify losses. Using examples like ProShares Ultra QQQ (QLD) and ProShares UltraPro QQQ (TQQQ), which track the Nasdaq 100 index, the YouTuber illustrated how even minor market fluctuations can significantly erode capital.

To understand why leverage is dangerous, you need to look at the word '1-day' attached to the return rate.

— KimjjanbuExplaining the short-term nature of leveraged ETF returns.

Kimjjanbu highlighted the crucial phrase '1-day' in leveraged ETF descriptions, emphasizing that these products are designed for short-term, daily adjustments. A hypothetical scenario demonstrated that after just five cycles of a 10% rise followed by a return to the original price, a 2x leveraged ETF could drop to 910,000 won and a 3x leveraged ETF to 760,000 won from an initial 1 million won investment. This phenomenon, often described as 'money melting' in sideways markets, underscores the product's inherent risk.

Leveraged products melt money in sideways markets.

— KimjjanbuDescribing the impact of market fluctuations on leveraged investments.

The YouTuber also stressed the importance of an investor's ability to stay in the market long-term, citing 2022 performance where a 3x leveraged ETF lost approximately 78% of its value when the underlying index fell 33%. Predicting market movements is impossible, making long-term investment products a safer choice. Kimjjanbu urged investors to understand the concept of 'liquidation,' a critical risk for high-leverage products tied to volatile assets, where the entire investment can be lost. The advice concluded with a call for healthy investing, prioritizing sustained market participation over the desire for quick, substantial gains.

You need to know that this can happen.

— KimjjanbuEmphasizing the risk of liquidation in leveraged investments.
DistantNews Editorial

Originally published by Dong-A Ilbo in Korean. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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