Some market participant placed an order to buy 1 million shares of Citigroup this morning at a price of $29.80  Rebate traders and scalpers love to lean on sizeable orders, and many of them took note of this large bid.  They began feasting on this order at approximately 10:20 ET when the stock price approached this large institutional bid at 29.80.  Scalpers buy ahead of the large institutional order, some aggressive traders buying at 29.81. Others buy the stock at 29.80 by placing their bids on other exchanges (the 1M share order was bid on the NYSE primary exchange).  These traders are trying to flip in and out of the stock for a cent or two, while collecting rebates in the process.

HFT rebate traders, and HFT internalizers were also feasting on this large order, as they bought stock from retail marketable sell orders at 29.80. (You can read more about internalizers here.)

All these participants were leaning on the huge institutional buyer at 29.80 in order to limit their risk.  But then at a time of 10:27:50, the institutional bid that they were leaning on, suddenly gets taken out.

Some other institution slams 594K shares at 29.80 in one mighty blow, causing all the participants leaning on that bid to scramble for liquidity.  The quick HFT programs and internalizers quickly slam out the remaining shares at 29.80, escaping mostly unharmed.

But slower traders, or non-co-located algo traders, scramble for liquidity causing a rash of sell orders to enter the market.  Some scalpers may have placed sell stops below this 29.80 level as well.  Those orders would also have been triggered.

This rash of sell orders caused a sudden spike down in the price of the stock, and the stock quickly fell to 29.43, as you can see on this chart.

(Nanex – also detailed this sudden mini-crash).

A valuable lesson for manual traders should be learned here.  Unless you have high frequency speed, and the ability to see orders coming up the pipeline, you are playing a very risky game by leaning on large bids.  When those bids get taken out, it can get real ugly in a hurry.

Some participants were trading for pennies and they got absolutely creamed here.  It’s like picking up pennies in front of a bulldozer.  Eventually you are going to get run over. It’s a dangerous game leaning on bids and if you don’t have high frequency speed, the risk of this game does not justify the return.