Who lends stocks for people to short sell with?
An Anonymous User asked:
Short selling is borrowing stocks and selling them, then buying the same amount of that stock back when the price has lowered, then returning the stocks to the borrower and keeping the profit (minus the fee’s)… So… Who are the people that actually lend the stocks out for the fee’s?
Usually the brokerage firm you have an account with.
A brokerage house is big enough that if Aaron wants to sell MSFT short, they’re almost certainly going to have another customer (Bob) who owns MSFT.
So, when Aaron sells MSFT short, the brokerage can lend Bob’s shares to Aaron to sell short.
If Bob shows up and wants to sell his MSFT, the brokerage can lend Charlie’s MSFT to Bob and so on and so forth. There’s limits to how many of these shenangans a brokerage can play. Ultimately, the brokerage may have to dip in to some of its own assets to lend out for short sale requests.
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