In 1918, as a result of defeat in World War I, the Austro-Hungarian Monarchy collapsed. On October 31, 1918, the success of the Aster Revolution in Budapest brought the liberal count Mihály Károlyi to power as Prime-Minister. The new government officially declared Hungary an independent republic in November, after the end of the war. After the collapse of the Austro-Hungarian Empire, the countries of Romania, Yugoslavia and Czechoslovakia, supported by the USA and the Entente Powers, made claims on the historical lands of the Hungarian Monarchy. All three countries sent armies into Hungary. Despite its appeals to the Entente, the Karolyi government could not resist the armies of its neighbors and large parts of Hungary were occupied.

By February 1919 the government had lost all popular support, having failed on the domestic and military fronts. On March 21, after the Entente military representative demanded more territorial concessions from Hungary, Károlyi resigned. The Communist Party of Hungary came to power, led by Béla Kun, and proclaimed the Hungarian Soviet Republic.

The Communists – "The Reds" – came to power largely thanks to being the only group with an organized fighting force, and they promised that Hungary would regain the lands it had lost (possibly with the help of the Soviet Red Army). The Communists also promised equality and social justice, but instead of that, a Red Terror began by half-regular and half-militarist detachments, called "The boys of Lenin", and many democrats, anti-communists and other people were executed without trial, so the Communists quickly lost whatever initial support they had. Initially, Kun’s regime achieved some impressive military successes by the leading of the genius strategist, Colonel Aurél Stromfeld. It halted the Romanian advance in the East and ousted Czechoslovak troops from disputed lands and proclaimed an ephemeral Slovak Soviet Republic. In terms of domestic policy, the Communist government nationalized industrial and commercial enterprises, and socialized housing, transport, banking, medicine, cultural institutions, and all landholdings of more than 400,000 square metres.

However, that popular support proved to be short lived. In the aftermath of a coup attempt, the government took a series of reprisals that alienated much of the population. Land reform took land from the nobles but did not effectively distribute it amongst peasants. The Soviet Red Army was never able to aid the new Hungarian republic. Although it did not lose any battles, the Hungarian Red Army gave up land, under pressure from the Entente. In the face of domestic backlash and an advancing Romanian force, Bela Kun and most of his comrades fled to Austria, while Budapest was occupied on August 6. All these events, and in particular the final military defeat, led to a deep feeling of antipathy among the general population against the Soviet Union (who had not kept its promise to offer military assistance) and Jews (since many members of Kun’s government were Jewish, thus making it easy to blame Jews for all the government’s mistakes).

Now, the new fighting force in Hungary were the Conservative counter-revolutionaries - the "Whites". These, who had been organizing in Vienna and established a counter-government in Szeged, assumed power, led by István Bethlen, a Transylvanian aristocrat, and Miklós Horthy, the former commander in chief of the Austro-Hungarian Navy. Starting in Western Hungary and spreading throughout the country, a White Terror began by half-regular and half-militarist detachments (as the police power crashed, there were no serious national regular forces and authorities), and many Communists and other leftists were executed without trial. Where the Whites could not eliminate elements of the soviet republic, the Romanian forces did, with similar methods. Radical Whites launched pogroms against the Jews, displayed as source for all of Hungary’s difficulties. The Romanian army robbed the country. (The estimated property damage of their activity was so much that the international peace conference in 1919 refused Hungary to pay war redemption to Romania.) As foreign forces left, and Horthy and his government rose into power, they set up authorities, restored security and stopped terror, but radical dictatorial movements, like communism, and later fascism and Nazism, were suppressed, leading to the imprisonment of thousands of political sympathizers of the Karolyi and Kun regimes. On November 16, with the consent of Romanian forces, Horthy’s army marched into Budapest.