Short Sell - Concept

To profit from a stock price going down, short sellers can borrow a security
and sell it, expecting that it will be cheaper to repurchase in the
future. When the seller decides that the time is right (or when the
lender recalls the shares), the seller buys back the shares in order to
return them to the lender. The process generally relies on the fact
that securities are fungible, so that the shares returned do not need to be the same shares as were originally borrowed.

The short seller borrows from their broker, who usually in turn has borrowed the shares from some other investor who is holding his shares long; the broker itself seldom actually purchases the shares to lend to the short seller.^[1] The lender of the shares does not lose the right to sell the shares.

Short selling is the opposite of "going long." The short seller takes a fundamentally negative, or "bearish"
stance, intending to "sell high and buy low," to reverse the
conventional adage. The act of buying back the shares which were sold
short is called 'covering the short'. Day traders and hedge funds often use short selling to allow them to profit on trading in stocks which they believe are overvalued, just as traditional long investors attempt to profit on stocks which are undervalued by buying those stocks.

In the U.S., in order to sell stocks short, the seller must arrange
for a broker-dealer to confirm that it is able to make delivery of the
shorted securities. This is referred to as a "locate." Brokers have a
variety of means to borrow stocks in order to facilitate locates and
make good delivery of the shorted security.

The vast majority of stock borrowed by U.S. brokers come from loans
made by the leading custody banks and fund management companies (see
list below). Sometimes brokers are able to borrow stocks from their
customers who own "long" positions. In these cases, if the customer has
fully paid for the long position, the broker cannot borrow the security
without the express permission of the customer, and the broker must
provide the customer with collateral and pay a fee to the customer. In
cases where the customer has not fully paid for the long position
(meaning the customer borrowed money from the broker in order to
finance the purchase of the security), the broker will not need to
inform the customer that the long position is being used to effect
delivery of another client's short sale.

Most brokers will allow retail customers to borrow shares to short a
stock only if one of their own customers has purchased the stock on margin.
Brokers will go through the "locate" process outside their own firm to
obtain borrowed shares from other brokers only for their large
institutional customers.

Stock exchanges such as the NYSE or the NASDAQ
typically report the "short interest" of a stock, which gives the
number of shares that have been sold short as a percent of the total float. Alternatively, these can also be expressed as the short interest ratio,
which is the number of shares sold short as a multiple of the average
daily volume. These can be useful tools to spot trends in stock price
movements.