We put the most common beliefs about short selling to the test. The results might surprise your clients – and change how they think about their portfolio.
✓ True ✗ False ~ It depends
| Belief | The Reality | |
| ✗ | “Short selling drives down stock prices long-term” | Share prices are determined by company performance, investor sentiment, and macroeconomic conditions. Research has shown no lasting price impact from short selling. |
| ✗ | “If someone borrows my shares, they’re betting against me” | Short selling is only one reason shares are borrowed. Borrowing also supports hedging, market making, liquidity provision, and trade settlement – all essential market functions. |
| ✗ | “By lending, I’m enabling the short sale” | Short sellers will usually find supply – from pension funds, ETFs, or other institutions. Your client’s participation doesn’t change whether the short happens – only whether they can earn from it. |
| ✗ | “Short sellers ruin companies” | Short sellers can be right or wrong. But it’s business performance – not short activity – that typically determines a stock’s long-term direction. |
| ~ | “Short selling creates volatility” | In thinly traded or already volatile stocks, short selling may add short-term pressure. But in liquid markets, the effect is usually minimal – and short squeezes can just as easily push prices up. |
| ✗ | “Short selling is unregulated and risky for markets” | Naked shorting is illegal or heavily restricted in most countries. Borrowers must locate and borrow shares before selling. The securities lending market has operated with institutional safeguards for decades. |
| ✓ | “Short selling is a normal part of how markets work” | Correct. Short selling supports price discovery, market liquidity, and efficient capital allocation. The world’s largest pension funds and sovereign wealth funds participate in securities lending. |
| ✓ | “Investors can earn income from short selling demand” | When borrowers need shares, they pay fees to the lender. Long-term holders can earn passive income on stocks they already own – from modest rates on widely available stocks to higher rates on high-demand stocks. |
Short selling will usually happen regardless of an individual client’s participation. The fears are largely misplaced, but the opportunity to earn extra income is real. Investors who understand how short selling works don’t fight it. They get paid by it.
8/8 Common fears debunked. Read the FAQs here: Short selling and securities lending: Here’s what your clients want to know.
For institutional investor use only. This material is provided for informational purposes only and does not constitute investment advice, an offer, or a solicitation to engage in securities lending or any investment strategy. Like all investment activities, securities lending involves risk – including counterparty, collateral, and market risk. When an investor’s shares are on loan, voting rights are temporarily transferred to the borrower, and any payments received in lieu of dividends may be treated differently for tax purposes. The borrower may use the securities for short selling or related trading strategies. Any income from securities lending is variable, not guaranteed, and dependent on market demand and other factors. Past performance or lending demand does not necessarily predict future results. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
