Is there a way to allow shorts without having to manage margin and having to carry risk on the balance sheet? They have to deal with two counterparties (you, and whomever is lending you the shares). I am not sure how they could economically offer free short trades.
You'd probably have to charge something like a borrowing cost. There isn't really a risk free way to do it - if you short a stock and it goes up 100x then there's a liability there and if the customer can't pay up then the broker is stuck with it.
For a brokerage managing short position risks are exactly the same as managing long positions. And the implementation is the same too. Do real-time checks and once a position has lost more than X%, sell the position immediately.
The biggest problem presumably for Robinhood is managing the borrowing of the shares. They're probably not large enough to have a pool of shares to consistently borrow from like other larger brokerages.
On BitMEX you can make leveraged short/long bitcoin trades without the downside of owing more than you put in. Max you can lose is 100%. It’s powered by a purpose-built stoploss liquidation engine
Stoploss only works under fairly stable market conditions. If the sell orderbook suddenly starts to get a lot bigger than the buy side then it's likely that the price will fall below your limit price before the order fills.
