[prdonahue]

Umm, you know how short sales work right? You're borrowing shares to sell them at current prices and then have to return the shares later. If the price rises, you are out the difference between what you sold at and what you repurchase at for when the call to cover comes in.

[nayshins]

From Wikipedia: "Naked short selling, or naked shorting, is the practice of short-selling a tradable asset of any kind without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale." It is really easy to lose your shirt with a naked short.

[spinlock]

Naked shorting doesn't do much to exacerbate the downside of shorting a security. Even if you have borrowed the security, you still have an unlimited downside (i.e. the stock price _can_ go to infinity).

Naked shorting is more of a systemic problem because you can put downward pressure on a stock even when the market is not willing to sell at the price you are pretending to sell at. It also makes it hard to keep track of voting shares and you can see many more votes than actual shares.

[newman314]

Aka "unlimited downside".

[samstave]

From whom does one do this borrowing?

[TDL]

Look at the agreement you sign when opening a brokerage account. You give the brokerage firm the right to loan out any shares of stock you own. I believe this only happens in accounts that have margin (you do have to have a margin account to short), but I am not entirely certain.

[querulous]

generally from your broker (who borrows them from their other clients who own those shares). there's some institutional lending also

[samstave]

Apologies for my complete ignorance -- but doesnt that sound super shady?