I'll be adding shorting to glbse.com in about a months time (after every other damn important feature that needs done).
How will collateral work on that? What if someone shorts 1000 BTC and it goes up to $20? Will you need to put up your own capital to take these bets? Will it be 'naked short selling' or will there be a market to lend ones BTC to those wishing to short?
Good question. Users will be given the option of putting the assets they own up for shorting. This will involve a little risk, for example if the short goes wrong and the traders position has to be called, but no one is willing to sell, or to sell below an atronomical price then the assets being lent out for shorting will be gone.
That's the risk, the upside is that the asset lender will get some of the profit generated from a succesful short.
Margin rules will be set, so that users who are shorting have enough btc in their account to cover their position. Once they go beyond that point (or a point just before it, or a point calculated on the next highest available sell, i.e. way out of the short) they will be forced to settle, solidifying their loss.
Although right now there isn't anywhere near enough liquidity in GLBSE to make shorting work, I think most people who have bough shares won't sell at anything less than what they've paid (at least not yet).
Give it time.