# The month leverage showed its teeth Published: 2026-08-03T23:01:57.593Z Author: Olga Magomedova Canonical: https://olgamagomedova.com/insights/the-month-leverage-showed-its-teeth Topics: discipline-and-risk Tags: discipline, risk-management, position-sizing, drawdowns, leverage July delivered two live demonstrations of what happens when position sizing is confused with conviction. Olga Magomedova on the momentum unwind, the Kospi rout, and the discipline the tape has been asking retail traders to build for years. ## A month that priced conviction The tape does not usually deliver its lessons in one file. July was an exception. In the United States, a rapid selloff in the momentum trade wrecked its staunchest bulls, with a Bloomberg basket of 50 stocks favoured by amateur investors plunging 13 per cent in July on track for its worst month since 2022, and a Jefferies basket of Russell 1000 firms with the highest retail participation losing more than a quarter of its value since June. In Seoul, the Kospi rebounded 18 per cent on the final Friday of July but still ended the month with a 22 per cent loss, its steepest decline since the global financial crisis, with circuit breakers halting trading in index constituents four times during the month. Two markets. Same failure mode. ## The variable that was actually sized For Magomedova, the interesting number in each event is not the drawdown. It is the sizing that produced it. South Korean retail traders had put roughly 78 trillion won, or about $54 billion, into Kospi shares during May and June, encouraged by the government's market-reform campaign and the launch of single-stock leveraged exchange-traded funds. That is not a story about a bad view on artificial intelligence. It is a story about how quickly a book can be built when the tooling makes it easy. The Kospi has still delivered strong long-run gains for holders who sized appropriately. Samsung's shares slumped 21 per cent in July but are still up more than four times since the start of 2025, while SK Hynix lost 35 per cent but is up nearly ten times over the same period. The trader who owned those names in cash lived through a difficult month. The trader who owned them through single-stock leveraged products lived through something else. ## Leverage as a change of instrument A leveraged ETF is not the same instrument as the underlying. It has different failure modes, different behaviour in a drawdown, and a different relationship with time. Leveraged ETFs have become one of the fastest-growing segments of the market, with assets under management reaching a record $218 billion and increasing by roughly $82 billion, or 60 per cent, since the end of March alone, while leverage tied to technology has grown 136 per cent and leverage linked to semiconductor exposure has nearly tripled over the same period. The engineering description is straightforward. A new component has been introduced into the household portfolio, and its tolerances have not been tested by the household. When the regime changed, the component did what its specification said it would do. The surprise belonged to the buyer, not to the product. ## Buying the dip is a plan, not a reflex The pattern behind both events was visible for months. Retail investors purchased nearly 3.5 times the average daily amount on S&P 500 down days during the first half of 2026, the strongest buy-the-dip behaviour on record, and continued to buy nearly 1.5 times the daily average even on rallies. Persistent demand is not, by itself, a mistake. A persistent buyer with no exit rule is. Buying the dip is a legitimate strategy when the dip has been defined in advance, the size is bounded, and the plan describes what to do if the dip continues. It becomes a reflex when the buyer cannot answer any of those three questions in writing. The July tape was the difference between the two showing up on the account. ## The discipline the tape has been asking for Magomedova's working definition of position sizing is unglamorous. The correct size is the one the trader can hold without changing their behaviour tomorrow. Any size larger than that is a size the trader will not hold, which means the loss has already been taken. The order is just waiting to be entered. The evidence from July is that a great many households have been sizing above that line. The rebounds do not repair this. Retail investors sold a record amount of Kospi shares even on the 18 per cent rebound day, still finishing the month with a 22 per cent loss, the steepest since the global financial crisis. Forced selling into strength is the last artefact of a sizing decision made months earlier. > Engineering teaches you that systems matter. In markets, the same rules apply. You do not survive on instinct alone. ## The principle worth repeating The principle Magomedova has returned to across every essay applies here without adjustment. Independence is built before it is needed. A position that requires the market to cooperate for the household to remain solvent is not a position. It is a bet that has been given a different name. The correct time to discover this is not during a 22 per cent monthly drawdown or a 25 per cent unwind of the retail basket. The trader who came through July intact was not smarter than the trader who did not. They were sized differently. The size was a decision made in a quiet week, written down, and defended against the temptation to enlarge it when the tape was easy. That is the entire craft. The rest is commentary. ## Sources - [Momentum Crash Hits YOLO Traders' Returns by Most in Four Years](https://finance.yahoo.com/markets/stocks/articles/momentum-crash-hits-yolo-traders-122023341.html) (Bloomberg via Yahoo Finance, 2026-07-24) - [South Korean retail investors retreat after Kospi's record volatility](https://ng.investing.com/news/stock-market-news/south-korean-retail-investors-retreat-after-kospis-record-volatility-2632377) (Investing.com, 2026-08-01) - [Retail investors voice anger after Kospi rout](https://www.thestar.com.my/business/business-news/2026/08/03/retail-investors-voice-anger-after-kospi-rout) (The Star (Bloomberg syndication), 2026-08-03) - [1H 2026 Market Structure & Flows](https://www.citadelsecurities.com/news-and-insights/global-market-intelligence/1h-2026-market-structure-flows/) (Citadel Securities, 2026-06-30) - [July Market Structure Update](https://www.citadelsecurities.com/news-and-insights/global-market-intelligence/july/) (Citadel Securities, 2026-06-17) --- Drafted with assistance from claude-opus-4-7 on 2026-08-03. Fact-check: 17 claims verified against the cited sources.