I have concern over short squeeze that it may be exploited by an attacker to manipulate the market. Suppose the attacker is holding plenty of xts and several bitusd. He can create an order asking 1 bitusd for 1M xts. Of course no one buys his bitusd right now.
Then he starts to buy in bitusd with his xts. By rapidly doing it, bitusd rises and margin calls are triggered and short squeeze more margin calls. Eventually no bitusd is left for sale except for his, and margin calls are forced to buy his bitusd even though the asking price is ridiculously high.
Whether this will be successfully depending on market depth. If there are lots of bitusd listed for sell at one moment, the price for the attack will be high. However one cannot guarantee market depth at all times. It can be low sometimes, or if the attack holds lots of xts, he can still initiate the attack. Once the attack is initiated, most people may be watching instead of getting ready to catch the squeeze. More over, since margin calls are automatic, manual orders may not be added fast enough to catch the squeeze if they are not listed before the attack.
Remember that a few days ago, btc was down to 102 on btc-e? Isn't it an example of short squeeze? On traditional exchanges, most people are not playing margin account or stop buy/sell, so the implementation of short squeeze may not be easy. However on btsx margin accounts are everywhere, and short squeeze should be much easier to happen.
I have 2 ideas to solve this issue. One is to make the margin call an uncancellable limit order instead of market order. This should prevent chain effect from happening.
Second is put an up limit for bitasset every day or every certain number of blocks. This allows plenty of time for people to join to catch the squeeze.
This is called a short squeeze and if it happened there would be many people looking to enter new shorts (fully collateralized shorts) to make a profit and keep the price in line. The challenge will be if the short squeeze happens all in one block. I suspect there would be a large number of orders ready to catch any squeeze and put a stop to the rise.