Leveraged ETFs Can Collapse in a Crash — Here's Why They're Extra Dangerous

On July 7, 2026, shares of Samsung Electronics and SK Hynix dropped sharply in a single day. But something else happened too: 13 leveraged ETFs tied to these stocks saw their prices collapse simultaneously, triggering a wave of distressed investors. People who had held leveraged ETFs for months — betting that Samsung would hit 600,000 won — reported losing more than half their principal.

What does 'price collapse' mean for an ETF?

ETFs trade on stock exchanges just like regular stocks. But when an ETF's price falls too low, the exchange may determine it no longer meets listing standards. Typically, if an ETF's net asset value (NAV) drops below 1,000 won, it faces delisting risk. That's what 'price collapse' means here — similar to a stock getting a warning before being delisted.

Why do leveraged ETFs fall faster?

With a regular ETF, if Samsung drops 10%, the ETF drops about 10% too. A 2x leveraged ETF drops 20%. Most people know this part. The real danger shows up when you hold for the long term.

Leveraged ETFs have a hidden trap called negative compounding. Here's an example. Say your leveraged ETF is worth 100 won. It drops 20% to 80 won. The next day it rises 20% — but now you only have 96 won, not 100. The underlying stock is back to even, but the ETF is still down 4%. This erosion compounds quietly over time.

Why is the government now looking at regulation?

Leveraged ETFs lose more when volatility rises — but they also create more volatility in return. When prices dip slightly, leveraged ETF holders suffer amplified losses, which can trigger panic selling, pushing prices down further. It's a feedback loop. Deputy Prime Minister Koo Yun-chul cited this exact cycle — 'leveraged ETFs amplify market volatility' — as the reason for considering new regulations.

So are leveraged ETFs always a bad idea?

Not inherently. Leveraged ETFs are designed for short-term trading — a day or a few days at most, when you have a clear directional view. The problem is long-term holding. Thinking 'Samsung will eventually recover, so I'll just wait it out' doesn't work with a leveraged ETF. By the time the stock recovers, the ETF's value may still be far below your entry price due to negative compounding.

Most of the investors hurt today had been holding leveraged ETFs as a substitute for Samsung stock — expecting double the gains on the way up. What they got instead was double the losses on the way down, and then some. Now you know exactly why.