I apologize if this has been discussed somewhere in the previous 23 pages. . .
If Bitcoinica allows users to borrow Bitcoins for margin purposes, and to borrow Bitcoin for short selling, obviously it all works out if the trades go in favor of the users. But what happens if the trades go the other way, the users are now in debt to Bitcoinica, and let's say some users don't pay Bitcoinica what they owe them? If users can profit when the market goes their way (and keep their Bitcoins as profit), and they can abandon their accounts when they go the other way, how does Bitcoinica not swiftly go bankrupt?
If Bitcoinica allows users to borrow Bitcoins for margin purposes, and to borrow Bitcoin for short selling, obviously it all works out if the trades go in favor of the users. But what happens if the trades go the other way, the users are now in debt to Bitcoinica, and let's say some users don't pay Bitcoinica what they owe them? If users can profit when the market goes their way (and keep their Bitcoins as profit), and they can abandon their accounts when they go the other way, how does Bitcoinica not swiftly go bankrupt?
I think the general principle is that before you get in debt to Bitcoinica, you get liquidated.
Bitcoinica ends up getting screwed only in the event of very high price volatility in which liquidations cannot be done within anticipated ranges, or in the event of coding errors. My understanding is that Bitcoinica maintains a reserve of their profits to (hopefully) allow for either of these eventualities, and anticipate that many users would walk away from obligations such as you are describing.
That makes sense for margin trading, I suppose, but what about shorting? Aren't you necessarily in debt to your brokerage when you are short selling something?
