Short Selling Resumes — Why Are Individual Investors at a Disadvantage?

Why Short Selling Is Unfair to Individual Investors – A Comparison Between Korea and the U.S.

Short selling has resumed in the Korean stock market, stirring debates among investors. While it can play a role in stabilizing prices, the reality in Korea often puts individual investors at a disadvantage. In this post, we take a critical look at the structural problems behind short selling, comparing Korea and the U.S., and explore how it can be improved.

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What Is Short Selling?

Short selling is a trading strategy where an investor borrows shares and sells them at the current price, expecting the stock price to fall. If the price drops, the investor can buy the shares back at a lower price and return them, pocketing the difference. For example, if you sell borrowed shares at 100,000 KRW and repurchase them at 80,000 KRW, you earn 20,000 KRW in profit.

Korea vs. the U.S. – Key Differences in Regulation

Short selling exists in both Korea and the U.S., but the systems are quite different. The U.S. enforces the Uptick Rule, which restricts short selling when a stock’s price is dropping rapidly—this helps prevent excessive declines. In contrast, Korea has historically lacked such protective mechanisms, and the “naked short selling” issue—where shares are sold without actually borrowing them—has been a persistent concern.

Moreover, while U.S. retail investors can participate in short selling under certain conditions, Korean retail investors face strict limitations and high barriers to entry. As a result, short selling in Korea is dominated by institutions and foreign investors, leaving individuals vulnerable.

Why Is It Unfair to Individual Investors?

Short selling can sometimes be used to deliberately suppress the price of certain stocks. In Korea, smaller-cap or thematic stocks often become targets of concentrated short selling, which leads to sharp declines.

In the past, stocks like Kakao Games and Celltrion Healthcare were hit by massive short selling, resulting in significant losses for retail investors. As short selling resumed in March 2025, sectors like shipbuilding and defense saw a rapid surge in short interest, raising concerns once again among individual investors.

The Need for a Fairer System

Short selling, when used correctly, isn't inherently bad—it can help correct overvalued stocks and increase liquidity. However, if the system is tilted in favor of large institutions, it undermines market fairness and investor confidence.

For short selling to serve its intended purpose, Korea needs stronger regulations—like the U.S.—to curb abusive practices. More importantly, retail investors should have better access to tools and information, enabling them to compete on fairer ground.

A stock market should belong to everyone. Only when transparency and fairness are ensured can short selling function as a tool for balance, not manipulation.