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According to, Investopedia, as more shares are shorted, the total supply of lendable shares is decreased since fewer shares are available to borrow.

But the same shares that have been shorted can apparently be borrowed & shorted again according to (Can a single share of stock be shorted multiple times?) -- which seems to contradict the shrinking supply reasoning. Isn't this a theoretically infinite supply since there is apparently no limit?

How is the borrow rate influenced by the supply of lendable shares decreasing as short interest rises if there's nothing to prevent already shorted shares from being lent over & over again?

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When shares are loaned for shorting, some of the buyers have cash accounts. AFAIK, shares cannot be loaned from a cash account though someone posted here this week that they can if one signs a lending authorization for. If that is true, I doubt that many owners of cash accounts are doing so since they tend include a lot of less sophisticated investors/traders (they don't short since a margin account is require to short) and/or they don't know about this special dispensation. Either way, cash account ownership reduces the number of loanable shares thereby decreasing the total supply of lendable shares.

Borrow rates fluctuate based on the security’s demand and the available inventory. But bear in mind that as the short interest increases, brokers may raise the borrow rate because they perceive higher risk.

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  • If in theory a share can be relended an unlimited times -- then suppose that all shares are in cash accounts except N shares at each broker. Assuming N > 0, Wouldn't any trader be able to repeatedly short any number of shares simply by reshorting the same N shares over and over until the number of desired shares were shorted? And if the supply is unlimited in this way, then the demand would be immaterial. I get the risk reasoning. I just don't see how the supply demand argument can be applied to shorting if there's always supply for any amt of shorting.
    – femto
    Commented Feb 5, 2021 at 9:58
  • There are N shares. When shorter B borrows shares from A, he sells to C. If C is a cash account, the number of borrowable shares (N) decreases. Commented Feb 5, 2021 at 15:07
  • But if you only need 1 borrowable share to short any number of times, then there'd be no difference in the supply of shorts since a large N or just 1 share could accomplish any short with unlimited relends -- only 0 shares could stop a shorting action. So I still don't see how the supply relates to shorting if any finite number of shares (even 1) allows for any unlimited shorting action.
    – femto
    Commented Feb 5, 2021 at 16:50
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    As a retail trader, I can't tell you what all of the inner workings of brokerage firms are when it comes to shorting. But having shorted many, many stocks over many years, I can state from personal experience that many stocks become non borrowable (no further shorting) and that occasionally, I have received a forced buy-in notice (the stock is non borrowable and the lender is selling) that required me to close my short position by 4 PM or the broker would do so. That means that premise that unlimited shorting is available for all stocks is false. Commented Mar 7, 2021 at 11:48

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