In trades 2 and 3, you would get a cancelled order back. There is another error I've seen that is "order held" and that one is left open while IB looks for shares. That is not ideal! I want to pass the full error back to you, but the connector isn't in place yet. You'll notice in the "logs" tab that you get SYSTEM messages about IB activity. When we finish the connector, you'll see the fuller IB message about short sales in the connector.
On #2, yes, we have thought about that. First we need to build a margin model so that your cash is more "real world" and doesn't permit unlimited borrowing. Once we have that, I think that will enable us to put in more realistic short sale failures. Note, though, that backtesting that would also include getting historical short sale availability, which isn't easy.
On #3, I have no idea if IB is doing random or giving real answers based on their short availability. I'd be curious about that answer too.
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