I'm not very well versed in the world of finance and trading, but BitShares has piqued my curiosity and I'm pretty interested and excited about it's potential so I've been reading a little bit.
My understanding of short selling is that I borrow an asset and sell it to someone for X. Then later I buy that same asset for Y, return it to the lender, and make a profit of X - Y. This leads me to believe that my account balance would go through these steps:
1. Original balance
2. Original balance + X (Open short position)
3. Original balance + (X - Y) (Close short position)
Or if I had to collateralize my debt, I would assume that my balance wouldn't even change at all until I closed the short position, since I would put up the collateral to borrow the asset, immediately sell it for the same amount as the collateral, buy it back later at a different price, return it to get my collateral back, and ultimately be again left with a profit of X - Y.
In order to play around with this, I opened a very small short position on bitUSD, however I feel I must be missing something because my account balance was docked the value that I sold it for (presumably as collateral for the loan), but I never received any BTSX for the sale. To make it easier to follow I'll just use actual values:
I opened a short position for 7 bitUSD at 24BTSX/bitUSD, which was immediately sold to someone with a bid at that price.
My account balance was reduced by 168BTSX.
This is where I get confused, because the way I expected it to work is that I now have to buy 7 bitUSD to cover my short position, at which point I would get my 168 BTSX back. Say the price goes to 20. I buy 7 bitUSD for 140 BTSX, then return the bitUSD to get my 168 BTSX back. However at this point I've spent 308 BTSX, so even though the price went down, I've still lost 140 BTSX. Can someone explain what I've misunderstood, and how the whole process of shorting/covering works on the BitShares marketplace? Thanks!