Who's selling your stock lesson makes investors aware that brokers loan your and other street form stock to high selling short sellers. They buy back when prices fall to profit after repaying the loan and costs.
What you learn:
Brokers increase their returns by loaning street from stock from inventory to short sellers. By understanding that is how short sellers find stock to sell, you can understand how brokers serve both buyers and sellers that sometimes have conflicting interests and needs. That gives you a deeper understanding of stock market operations. Knowing more about stock markets and investing helps you grow as an investor.
FAQs investors asked about Who's selling your stock?
These questions and answers about who's selling your stock have overlapping answers which help investors understand how stock markets, investing, and money-making interrelates.
Can companies see who bought their stock?
Privacy policies, regulations, and laws restrict companies' access to most trading information. The public record usually displays the street name of the stockbroker's firm, not the individual investor's name.
However, directly registered shares reveal the owner's name, whether they belong to an individual or a company. Trades of those shares show that name, indicating the beneficial owner, a holding company, or other legal trading entity.
Therefore, companies face limitations in identifying those who have purchased or sold their stock unless the owner wishes to be named.
Who benefits from short selling?
Short sellers can collect huge returns when they time and execute a significant short sale. And the broker loaning the shares also collects substantial fees, including margin interest and trade commissions.
When short sales uncover financial or management weaknesses or frauds, markets and competitors also benefit.
When short selling pressure triggers market forces, weak players get removed, and their capital gets recycled to stronger players. That makes markets stronger.
Removing weak companies also benefits competitors and the shareholders of more substantial companies.
By understanding short selling, any investor knows more about stock markets and how to use them to make money work.
Are all stock sales on the public record?
Yes, trades of companies listed on public exchanges are publicly available. The stockbroker's firm name or "street name" is used for most retail investor trades rather than the individual investor's name.
Individual investors don't need to disclose their trades or holdings publicly.
However, all listed companies provide public information in the investor information section of their website, and the public has access to the filings for each company on the SEC website in America or SEDAR in Canada.
How can short sellers sell my stock?
Your broker may be loaning your stock to a short seller!
The inventory of common stock held by brokers includes the holdings of the broker and those of most client accounts.
In their role as trading facilitators, brokers serve the conflicting interests of clients that deal both long and short. So, for a fee, short sellers can borrow from that inventory to short sell.
However, the broker, not the individual investor, lends and collects the fees. As a result, any benefit or risk belongs to the broker.
Where are my stocks held?
A brokerage account stores the stocks you buy. You can use this account to buy, sell, and hold stocks, bonds, mutual funds, and exchange-traded funds (ETFs). You access your stock information through the broker's online platform or app.
When you buy stocks, the brokerage firm records ownership in their "street name" and can loan the shares to short sellers. Investors can prevent brokers from loaning the stocks to a short seller by directly registering the shares in their name. However, that option has costs and complications that require the investor to deal with a separate transfer agent from the listed company.
To select your best brokerage fit, research and compare different brokerages' personnel, services, fees, and account features.
How do you borrow stock to sell short?
Short sellers must have margin trading enabled and enough capacity or equity to support borrowing stock from from the stockbroker's inventory. That inventory includes stocks owned by the firm, each broker, and their clients.
Any willing broker can give a short seller access to a large but not unlimited inventory for fees similar to margin interest. Brokers can serve buyers and sellers, including short sellers, and may help clients with conflicting interests.
Consequently, a broker can collect fees and profit from a company's shareholders and the attacking short sellers!
How Short Sellers Can Sell Your Stock
When a brokerage account holding your shares participates in securities lending, short sellers can sell your stock. Here's a detailed explanation of how this process works:
Securities Lending
Brokers lend shares from client accounts to short sellers in securities lending. Subsequently, this allows the borrowers to sell the shares on the market with the obligation to return them later.
Brokerage Accounts and Margin Accounts:
If you have stocks in a margin account, your broker might lend your shares to short sellers. The brokerage agreement you signed when opening the account outlines this practice that may also apply to a cash account, depending on your brokerage's policies.
Borrowing Shares:
When a short seller wants to short a stock, they borrow shares to sell. The broker looks for available shares to lend, which may come from their or clients' accounts.
Selling Borrowed Shares:
The short seller borrows your shares and sells them on the open market. This action increases the supply of shares available for sale, potentially putting downward pressure on the stock price.
Your Perspective as a Shareholder
Ownership and Dividends:
Even when lent, you remain the legal owner of your shares. However, you are still entitled to dividends. As a result, for shares loaned shares during a dividend period, the payment may appear as "payments in lieu of dividends." The lending broker accepts liability.
Voting Rights:
Depending on the margin agreement you signed, whoever owns the shares on the record date has the voting rights.
Broker Policies and Control
Brokers must manage their policies and terms when lending shares to short sellers. Depending on their margin agreement, clients can opt-out or participate in lending activities.
Opting Out:
Some brokers permit you to opt out of securities lending programs. However, that has restrictions, such as lower interest rates on cash balances or other account features. Although it involves costs, rather than holding shares in the street name (typically the broker's name), investors can stop share lending by registering the shares in their name.
Interest and Income:
Brokers earn interest and fees from lending shares to short sellers; some brokers might share a portion of this income with you. However, most brokers justify keeping the revenue as offsetting their liability and obligations.
Risks and Considerations
Stock Price Impact:
Although lending your shares to short sellers can contribute to downward pressure on the stock price, it's only one-factor affecting stock prices. In addition, market sentiment, company performance, and broader economic conditions also play significant roles in influencing stock prices.
Transparency:
Be informed. Check your brokerage account statements and agreements to understand if you agreed to loan your shares. You should also know the terms of any loan. Transparency and knowledge help you make informed decisions about your investments.
Going short means selling what you don't own
Investors that short a stock, profit by selling shares they don’t own. Without your knowledge, a short seller may have borrowed stock that you own. The loan comes from your stockbroker’s inventory which includes the stock you hold.
In lesson 1 of this course, we used borrowing sugar to help understand the short seller's need to find an inventory to borrow. That your stock can be loaned by your broker without any notice to you surprises many new investors. As long as the stock is in the street name, brokers hold it in a common inventory with all other shares.
For a fee, those shares are made available to borrowers. While short selling profits can be sweet, the behavior part of the process surprises many new investors. Loaning a friend or neighbor a sweet ingredient seems a little bitter when it turns to borrow stock to sell. You could feel put out should you learn ‘your’ sugar or stock was sold at a profit but that you get back now lower priced stock but none of that sweet profit or any of the fees charged by the broker.
The only consequence of not returning the sweet loan would be a sour taste. Missing out on any profit may be legitimate, but we can understand someone being annoyed, jealous, or envious.
In the market, all participants seek to profit from their actions and assets. No transaction happens for any other reason. Each asset held or move made returns profit or loss. Each and every deal made must be settled by both parties. Selling short is simply one of those possible transactions.
Mad about shorting
Selling short or even discussing shorting a stock can raise the blood pressure of some people. Some can get quite mad and suggest shorts are questionable, unfair, illegal, unethical, or immoral. Some even make a great deal of noise leaping onto their moral high horse to gallop off in several directions at once!
Weathering the trend
To avoid any horse-riding accidents or embarrassment, using an analogy can give a novice a better understanding of shorting. Consider that you are setting up a business to make bets on the weather. Your weather betting business places and accepts bets on future daytime high temperatures.
As sure as spring follows winter, betting that some weeks into the future there will be higher temperatures works well for half the year. But only for half the year, and only if you are not at the equator, of course.
Temperatures trend higher and lower in a predictable and known annual pattern. During the other six months, the temperature trend falls. There is no question, unfair, illegal, unethical, or immoral behavior does happen. Just the facts. The weather repeats known and predictable annual trends.
Betting up or down with the trend, will always be the most sensible, more probable and certainly more profitable move. Ignoring any permit issues, your weather bookie scheme raises no questions of unfair, illegal, unethical or immoral behavior.
Investing black sheep
Rather than betting on the weather, short sellers bet that a stock price will be lower in the future. Although selling borrowed stock can turn heads and raise eyebrows, it remains perfectly legitimate. Still, short sellers are seen as black sheep investors.
Like an odorous flock of unwelcome visitors barging into a private club lounge, short selling disrupts the normal routine. A community of dealers and investors profiting from a rising market can get upset when the musky invaders arrive.
Such disruptive actions cause howls of protest. Most howls and moral outrage come from management of the targeted company. Additionally, those invested in the company and dealers associated with the target can add voices to the protest.
Howls from targeted companies and managements can be understandable. After all, short selling publicly and loudly says the targeted company may release imminent bad news, is overvalued or worse, a poor performer, fraud or run by bad managers.
Public accusations of bad management certainly get reactions. Short sellers get painted as disruptive, evil, and unwelcome interlopers. They get accused of hoping to steal shareholder value. At times, the back and forth public accusations can seem very much like a political campaign.
The battles can be entertaining and very nasty. As in political or legal fights, facts argued and leaked can be true, fiction, obscured, spun, or obliterated. Major short selling battles almost always involve legal maneuvers and court action.
As in any political fight, only public perception matters. The market immediately reflects the current investor perception of the company's worth. Shorts want to see selling pressure drive share prices down. Management and long investors want prices to hold or rise.
The short's profitable plight
The shorts have the plight of being the unpopular kid on the playground that cries, “Wolf!” Although selling short is not illegal, unethical, or immoral, should the bad news wolf actually come, it can be very profitable to have a short position.
Justified or not, the short seller’s target may be more than annoyed at the alarm being raised. When the shorts are right, the bad news becomes known. In a panic, shareholders sell and the stock price plunges.
At that point, unhappy stockholders and sellers can suffer great losses. The short player then profitably buys back stock at lower prices. That covers their short position and locks in their profit. All the moral high horses quietly go away.
Question Answered!
Knowing that brokers increase their returns by loaning from their inventory of stock to short sellers helps us realize our stock may get loaned. Having knowledge of how brokers serve multiple clients with sometimes conflicting needs to produce stock for short selling gives you deeper insight into stock market operations. That helps your growth as an investor.
Lesson takeaways,
Who’s selling your stock?
Who's selling your stock lesson makes investors aware that brokers loan your and other street form stock to high selling short sellers. They buy back when prices fall to profit after repaying the loan and costs.
- Short sellers must find stock they do not own to sell.
- Brokers with inventory will loan shares to short sellers.
- Short sellers often make the most unpopular stock market people's list.
Other lessons related to:
Who’s selling your stock?
Research confirms your holdings count
Bitcoin fraud trust and psychology
Bedrock of Toronto Stock Market
Portfolio measurements size positions
Winston Churchill sees crisis opportunity
Other Venture Exchange - Alberta
Canadian investment market base
Costs drive stock position size
Comments and questions welcome
Email me at [email protected].
Subscribe free and get White Top Investor lessons in your inbox!
Make money work for you by knowing how investors think, feel and act. Learn here The Investor Mind.
White Top Investor lessons, website layout and organization: click here.
Make money work for you
Become a knowledgeable, comfortable, and confident investor using White Top Investor lessons. Learn to invest one small step at a time at your own pace to become the master of your financial security and independence. White Top Investor never sells or shares our email list. Learn more.
Who’s selling your stock lesson makes investors aware that brokers loan your and other street form stock to high selling short sellers. They buy back when prices fall to profit after repaying the loan and costs.
What you learn:
Brokers increase their returns by loaning street from stock from inventory to short sellers. By understanding that is how short sellers find stock to sell, you can understand how brokers serve both buyers and sellers that sometimes have conflicting interests and needs. That gives you a deeper understanding of stock market operations. Knowing more about stock markets and investing helps you grow as an investor.
Frequently Asked Questions about Who’s selling your stock?
Who’s selling your stock?
Your broker may be loaning stock to a short seller! Brokers hold a common inventory of stocks that include the holdings of most client accounts and their own investment holdings as well. Brokers serve both buyers and sellers, including short sellers. That means brokers serve the interests of clients that may have conflicting concerns and needs. And that includes, for a fee, loaning stock, perhaps your stock, to a short seller that immediately sells it hoping the price will fall! It is the broker, not the individual investor that does the lending. As a result, any benefit or risk belongs to the broker. For more details and discussion see the lesson.
How do you borrow stock to sell short?
Short sellers borrow from the inventory of stockbrokers. In general, broker or financial advisor firms hold shares owned by clients in common with the inventory of any stock owned by the firm. For a fee, any willing broker can draw from that inventory and loan it to a short seller. As a result, for costs similar to margin interest, any willing broker can give short sellers access to a large, but not unlimited inventory. And, as brokers serve both buyers and sellers, including short sellers, every broker has the possibility of serving clients with conflicting interests and needs. As a consequence, brokers can serve and profit from both shareholders and short sellers of a company under attack!
Who benefits from short selling?
Short sellers can collect huge returns when they time and execute a significant short sale. And the broker that loaned the shares can also collect substantial fees including margin interest and commissions on the trades. When a short sale uncovers financial or management weakness or frauds, markets and competitors are also affected. When market forces remove weak players, capital can be recycled to stronger players. Removing weakness benefits both markets and competitors as well as investors. Understanding short selling helps investors grow by knowing more about stock markets and investing. For more details and discussion see the lesson.
Going short means selling what you don’t own
Investors that short a stock, profit by selling shares they don’t own. Without your knowledge, a short seller may have borrowed stock that you own. The loan comes from your stockbroker’s inventory which includes the stock you hold.
In lesson 1 of this course, we used borrowing sugar to help understand the short seller’s need to find an inventory to borrow. That your stock can be loaned by your broker without any notice to you surprises many new investors. As long as the stock is in the street name, brokers hold it in a common inventory with all other shares.
For a fee, those shares are made available to borrowers. While short selling profits can be sweet, the behavior part of the process surprises many new investors. Loaning a friend or neighbor a sweet ingredient seems a little bitter when it turns to borrow stock to sell. You could feel put out should you learn ‘your’ sugar or stock was sold at a profit but that you get back now lower priced stock but none of that sweet profit or any of the fees charged by the broker.
The only consequence of not returning the sweet loan would be a sour taste. Missing out on any profit may be legitimate, but we can understand someone being annoyed, jealous, or envious.
In the market, all participants seek to profit from their actions and assets. No transaction happens for any other reason. Each asset held or move made returns profit or loss. Each and every deal made must be settled by both parties. Selling short is simply one of those possible transactions.
Mad about shorting
Selling short or even discussing shorting a stock can raise the blood pressure of some people. Some can get quite mad and suggest shorts are questionable, unfair, illegal, unethical, or immoral. Some even make a great deal of noise leaping onto their moral high horse to gallop off in several directions at once!
Weathering the trend
To avoid any horse-riding accidents or embarrassment, using an analogy can give a novice a better understanding of shorting. Consider that you are setting up a business to make bets on the weather. Your weather betting business places and accepts bets on future daytime high temperatures.
As sure as spring follows winter, betting that some weeks into the future there will be higher temperatures works well for half the year. But only for half the year, and only if you are not at the equator, of course.
Temperatures trend higher and lower in a predictable and known annual pattern. During the other six months, the temperature trend falls. There is no question, unfair, illegal, unethical, or immoral behavior does happen. Just the facts. The weather repeats known and predictable annual trends.
Betting up or down with the trend, will always be the most sensible, more probable and certainly more profitable move. Ignoring any permit issues, your weather bookie scheme raises no questions of unfair, illegal, unethical or immoral behavior.
Investing black sheep
Rather than betting on the weather, short sellers bet that a stock price will be lower in the future. Although selling borrowed stock can turn heads and raise eyebrows, it remains perfectly legitimate. Still, short sellers are seen as black sheep investors.
Like an odorous flock of unwelcome visitors barging into a private club lounge, short selling disrupts the normal routine. A community of dealers and investors profiting from a rising market can get upset when the musky invaders arrive.
Such disruptive actions cause howls of protest. Most howls and moral outrage come from management of the targeted company. Additionally, those invested in the company and dealers associated with the target can add voices to the protest.
Howls from targeted companies and managements can be understandable. After all, short selling publicly and loudly says the targeted company may release imminent bad news, is overvalued or worse, a poor performer, fraud or run by bad managers.
Public accusations of bad management certainly get reactions. Short sellers get painted as disruptive, evil, and unwelcome interlopers. They get accused of hoping to steal shareholder value. At times, the back and forth public accusations can seem very much like a political campaign.
The battles can be entertaining and very nasty. As in political or legal fights, facts argued and leaked can be true, fiction, obscured, spun, or obliterated. Major short selling battles almost always involve legal maneuvers and court action.
As in any political fight, only public perception matters. The market immediately reflects the current investor perception of the company’s worth. Shorts want to see selling pressure drive share prices down. Management and long investors want prices to hold or rise.
The short’s profitable plight
The shorts have the plight of being the unpopular kid on the playground that cries, “Wolf!” Although selling short is not illegal, unethical, or immoral, should the bad news wolf actually come, it can be very profitable to have a short position.
Justified or not, the short seller’s target may be more than annoyed at the alarm being raised. When the shorts are right, the bad news becomes known. In a panic, shareholders sell and the stock price plunges.
At that point, unhappy stockholders and sellers can suffer great losses. The short player then profitably buys back stock at lower prices. That covers their short position and locks in their profit. All the moral high horses quietly go away.
Question Answered!
Knowing that brokers increase their returns by loaning from their inventory of stock to short sellers helps us realize our stock may get loaned. Having knowledge of how brokers serve multiple clients with sometimes conflicting needs to produce stock for short selling gives you deeper insight into stock market operations. That helps your growth as an investor.
Lesson takeaways,
Who’s selling your stock?
Who’s selling your stock lesson makes investors aware that brokers loan your and other street form stock to high selling short sellers. They buy back when prices fall to profit after repaying the loan and costs.
- Short sellers must find stock they do not own to sell.
- Brokers with inventory will loan shares to short sellers.
- Short sellers often make the most unpopular stock market people’s list.
Other lessons related to:
Who’s selling your stock?
Research confirms your holdings count
Bitcoin fraud trust and psychology
Bedrock of Toronto Stock Market
Portfolio measurements size positions
Winston Churchill sees crisis opportunity
Other Venture Exchange – Alberta
Canadian investment market base
Costs drive stock position size
Comments and questions welcome
Email me at [email protected].
Subscribe free and get White Top Investor lessons in your inbox!
Make money work for you by knowing how investors think, feel and act. Learn here The Investor Mind.
White Top Investor lessons, website layout and organization: click here.
Make money work for you
Become a knowledgeable, comfortable, and confident investor using White Top Investor lessons. Learn to invest one small step at a time at your own pace to become the master of your financial security and independence. White Top Investor never sells or shares our email list. Learn more.
Lesson links to:
Short story shorting stocks:
Short selling stock explained Lesson 1
Short selling improves markets Lesson 2
Short selling improves companies Lesson 3
9 Short seller facts align Lesson 4
Making money selling short Lesson 5
Shorting stocks has risks Lesson 6
Who’s selling your stock? Lesson 7
Short seller skill sophistication knowledge Lesson 8
Short seller cost control Lesson 9
Short selling has rules Lesson 10
Next lesson 8: Short seller skill sophistication knowledge
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