I do not think bitcoinica actually sold a bitcoin for every bitcoin shorted. They would internally say they did and only sell when necessary.
Yes absolutely, in the previous example I assumed there was only one open position, but with multiple open positions it's a different story.
if bitcoinica was "just a shady bucket shop", then they'd just pretend to open positions, but in fact they only trade for their own profit and bet against their customers. Many people assume that was the case.
On the other hand, if bitcoinica was a typical Contract for Difference offer, then they would
automatically forward the
net balance of all positions to the real market. In this case, they would
not bet against their customers, rather just earn the spread. Zhou Tong allways claimed that this was the case.
The leaked mails show that this claim seemed to be mostly true, while at times Zhou Toung played with the "hedge factor", i.e. only reflected a fraction of the net position to the market (if I understand correctly). For example, when seeing that the majority of the positions was short, but the market moves up, the operator of the platform could reduce the hedge factor (i.e. start preliminarily to buy back some positions). To that fractional part, this would then be an additional gain of the platform, and go against the own customers. But it could also be a protective means to prevent slippage.
