I understand the basic idea of selling something you don't own to buy it later when the value comes down. I just don't understand some details of how this happens. For example, how long can I want until I buy it back?
Let's go over what happened to OP. From what I understand, you initially sold $100 at $6 (with a limit order to short-sell at $5.69 at most) and then you issued two market orders: sold $50 at 5.9849 and another $50 at $6.9769. So, what happened at $7.43? You were forced to buy back?
First of all, make the large assumption that bitcoinica actually buys and sells coins on mtgox and is not a bucket shop.
You can wait as long as you like. As long as the price does not swing in a direction that totally screws you over.
It appears the OP wanted to short. But, like I, when first using the site you have to look closely at the spread which is
quite large, time delays involved in their website updating, and making a mistake with their web interface due to interpreting
things wrong. OP wanted to short at 7 but the bid was still sitting at 5.69. And this is when the price of bitcoin was 7!
So BOOM. 3 transactions shorting a 125 BTC at 5.69. Terrible move with the price at 7. Already in bad shape from the get go.
The person then realizes the mistake or tries to correct it when the bid moves to 6.97 on the website. Shorts another 50
but this time at the price they wanted.
Sadly.. bitcoin shot up to 7.43 during this time frame. When your net value falls below twice your maintenance value.. they
instantly liquidate your account and you pretty much lost your money.
If the person added more funds... they could have kept the position alive because their maintenance value would have
increased. For every 5 USD you add, your maintenance value is 1 USD.
Here is my trade I played with earlier. I had about 5 bucks in the account.
BTCUSD Market -3.0 - Executed @ 6.0627 about 4 hours ago
BTCUSD Market 3.0 - Executed @ 5.9751 about 6 hours ago
I bought 3 BTC@5.97
. Keep in mind I only had 5 bucks in there.. so 25 dollars to play with.
I waited a couple of hours and my bet the price would go up did happen. I sold at 6.06 and made about 9 cents
per BTC bought. Thus about 30 cents if I round. So, what is that? 5-6% profit I think.