what happens if a trade gets cancelled and i forget the items are in stash, continue farming and my inventory is full when i log off? Do i lose the items? Or is this kind of a bug where a person could have 2 inventorys on hand at once?

Items stay in your stash, which does give you a kind of second inventory. If you open a trade window, however, they'll be offered up for trade, so you'd need to remove the items if you don't want to trade them.

i see this as a potential exploit however in pvp. As now people will be able to bring every known resist and swap out from stash to inventory in a blink of an eye.

You are unable to place items from your personal Inventory into your Trade Stash.

you mean soulbound items correct?

No, he means you can't just open your stash and put items into it. You have to initiate a trade in order to open your stash. In order for this to be exploited in PVP, you'd have to have at least two players on a team who are willing to be ganked while opening a trade window to access items in their stash.

right ripper you got where i was trying not to get to for the exploits but a team of 2 can exploit this to no end