I’ve parked my planned article for this month as this topic has been winding me up more than watching Argentina at the world cup.

The Korea Composite Stock Price Index (KOSPI) fell 25% last week from its June high.

For context, KOSPI had been going absolutely gangbusters this year following companies like Samsung and SK Hynix benefiting from the AI hype train.

This led to many retail investors wanting to get in on the action, and instead of buying your standard index fund, they decided to squeeze a bit more juice from the orange and get a leveraged version instead.

For the uninitiated, this allows you to get more exposure to an asset for the same price.

Sounds great? It is when the stock is going up, you get more profit for the same amount invested. The only issue is that it is also leveraged when it goes the other way.

Everything will have been fun when the graph was green and Samsung’s stock was skyrocketing, but clearly not enough people were thinking that the KOSPI rising that quickly was going to correct at some point.

Goldman Sachs reckon that more than 1.2 million leveraged retail accounts across the Korean market had triggered margin calls by July 13,

That’s 3.4% of the entire country’s population, or one in every 30 adults.

Approximately 320,000 to 360,000 accounts fully liquidated by brokers.

These investors, especially those whose accounts were fully liquidated have likely lost a significant portion of their life savings. That’s the opposite of what investing is meant to do.

It’s not just leveraged funds where retail investors get burned; it’s also contract for difference (CFD) offerings.

Now here is where I get pissed off with the investing platforms.

They repeatedly produce ads that promote these risky investments.

One I keep seeing from Trading 212 is an ad that says

“Trade gold long and short”

Now what does the average Joe know about the price of gold, other than it’s really expensive?

So why are investment platforms pushing these products? Well one has to wonder if it comes down to money.

I have used Trading 212 for many years and love the platform, but you can’t help but asking yourself how they afford to offer commission free trading?

One of the answers is their contract for difference (CFD) offering.

If you were wondering (you probably weren’t) - A CFD is a bet on whether a price will go up or down - you never actually own the asset. It’s usually traded with borrowed money (leverage), which can multiply your losses fast.

Each time you do this, Trading 212 makes money.

In the UK we have a problem where not enough people invest their money, instead they park it in cash accounts. One of the reasons given is that people think investing is too risky. When products like leveraged funds and CFD’s are so accessible it does not help the cause.

So if like me, you wonder what the difference is between a derivative, CFD, leveraged fund, option, short, futures contract…

Stop investing in them (or don’t start)!

Investing is supposed to be boring wealth creation, not an adrenaline sport. Stick to the simple stuff - your future self will thank you.

Disclaimer: I am not a financial advisor. This article is for informational and entertainment purposes only and does not constitute financial advice.