Systemic Deleveraging Cycles

Systemic deleveraging cycles are periods where a broad reduction in leverage occurs across the market, leading to sustained downward pressure on prices. This often starts with a single major failure or a sharp drop in prices, which triggers margin calls and forced liquidations.

As positions are closed, prices fall further, triggering more margin calls, creating a self-reinforcing cycle. These cycles are characteristic of market crashes and can last for extended periods as the market works to remove excess leverage.

Understanding these cycles is vital for identifying the end of a market cycle and the beginning of a recovery phase.