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I've always seen the first transaction between A and B described as "borrowing", since no money changes hands at that stage.

You asked whose shares you are using to place the short. Mechanistically speaking, you, the short-seller, have to locate people willing to loan you the shares in return for some sort of consideration, usually a small interest payment. In practice, brokerages perform this service for you, often by using shares owned by other clients "on margin" (with credit from the brokerage). Your broker can probably give you, upon request, an "easy-to-borrow" list, showing the stocks that can be shorted without concern for how to cover your position.

In practice, short lenders usually don't participate knowingly in the short sale -- as mentioned above, they are often just other investors who own shares on margin (credit). So, they are generally hoping that the price of the share goes up (that's why they own the stock), but lending shares for a short sale has no connection with a particular market outlook.




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