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You borrow from large institutional investors. These funds just own large amounts of stock in the hopes of achieving a profit through dividends and growth of the company. A trader who wants to short a stock can borrow some of this stock for a fee. Everybody wins this way. The large institutional collects the borrow-fee, and the trader can profit from a decline because he has borrowed the stock.

[pet peeve] Note that naked short is actually mathematically equivalent to (naked) long only with a minus sign. For example: every publicly traded company is naked short it's own stock from the day it goes public (collecting a huge heap of cash in exchange for selling the stock). Another example: Everybody owning stock (or anything really) is also short cash (unless they borrow money to buy it). So all people long [insert company name here] are short [insert currency here] i.e. they will profit when [currency] drops wrt to [stock]. Those unpatriotic bastards! [/pet peeve]

True. When you buy IBM on margin, you're shorting USD.

So if they reinstate the uptick rule for short selling, shouldn't they add a downtick rule for margin buying? :)

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