Blind ETN Investment... The FIRE Generation Set It Ablaze

[Asia Economy Reporter Minji Lee] "I was absolutely sure oil prices would rise, so I even opened a negative balance account and put all my money into this, just waiting for the price to go up..." (34-year-old investor Mr. A)

"Rollover, indicative value, premium rate... I bought oil investments because I was told to trust them, but I had no idea it was this complicated." (60-year-old investor Mr. B)

The drop in oil prices was the root cause. When unheard-of oil prices appeared before their eyes, retail investors fell into oil leveraged Exchange Traded Notes (ETNs) as if hypnotized. Despite being derivative products with a more complex structure than regular stocks, even novice investors blindly invested just because they were told they could earn high returns. On top of that, the 'FIRE (Financial Independence Retire Early)' group, which had led the Bitcoin and real estate investment frenzy, joined in, further heating up the market.

[Image source=Yonhap News]

According to the Korea Exchange on the 29th, individual investors have net purchased 554.8 billion won worth of oil leveraged ETNs from last month until the 22nd of this month. When the price of West Texas Intermediate (WTI) crude oil plummeted 24.42% from the previous day to $20.37 on the 18th of last month, individual buying surged even more. Previously, individuals had been buying about 15 to 16 billion won worth daily, but on the 19th alone, they purchased 47.9 billion won worth of oil ETNs, followed by 29.4 billion won and 31.7 billion won on the 20th and 21st, respectively. On the 27th, when the lower price limit was repeatedly hit, individuals net sold 631 billion won worth. During this period, the premium rate of ETNs reached 1000% solely through individual transactions. Liquidity providers (LPs) tried to align the indicative value (IV) and product price by listing an additional 492 million shares, but it was insufficient to stop the aggressively buying individuals.

A large number of investors aiming for a 'big win' flocked to the ETN market. The sentiment that 'now is the chance to make a big profit' prevailed, and young investors eager to gather money early even opened negative balance accounts to enter the market. Mr. A, who has an active investment style, said, "I knew there was an oil product in ETNs, so I bet on leveraged products right after oil prices dropped. I also had Bitcoin experience and was confident it would rise someday, but when I saw the premium rate exceed 1000%, I stopped investing."

Many investors borrowed money with the conviction that oil prices would eventually rise. Some investors who had never traded stocks before took out loans to buy leveraged derivative products. Mr. B said, "I took out about 160 million won in loans using my house as collateral and put money into two products. People around me told me to buy oil products now, so I opened an account for the first time and bought these products, but now I can't even sell them on the market," he lamented.

The biggest problem pointed out is that individuals invested in derivatives without properly understanding the product structure. They jumped into investments without mastering essential information required for ETN investment such as rollover, indicative value, theoretical price, and premium rate. Investor Mr. C said on an online stock bulletin board, "If I had known that if oil prices fell 50%, the underlying value would be zero and I would lose everything, I would never have invested. There seems to be only vague explanations and no detailed disclosure to investors."

Despite repeated warnings, the financial authorities are considering raising the market entry barrier as the retail investors' oil ETN investment frenzy does not subside. They plan to introduce a pre-education system like that for futures and options investors to prevent abnormal ETN trading. A securities industry official said, "If the financial authorities are considering making individuals undergo pre-education, it shows how serious the situation is. The Donghak Ants have grown wings, but instead of becoming queen ants, they are turning into moths drawn to the flame," expressing concern.

This content was produced with the assistance of AI translation services.