It is not clear to me how the lender of the shares profits at all from short selling.
- The broker profits by lending the shares to someone else and then getting paid interest
- The short seller profits by buying the shares back at a lower price and pocketing the difference (minus the interest paid to the broker)
How does the original owner of the shares profit from the transaction ? Who are those lenders ? What are their motivations ?
In case the short seller is actually forced to buy the shares back at a higher price (e.g. short squeeze) I guess the lender profits. But was if short selling is successful from the borrower point of view ?
Follow-up question: what prevents the broker lending the shares for a very short time (less than a day), pocketing the interest and returning the lenders their shares without much change in share price (because borrowing period was very short). What prevents them from doing that many times a day ?