Thinking through the short selling model it would appear to me that the loser in short selling is the actual owner of the shares in question and that the winners will be the institution that lends the shares for a fee and the hedge fund or such like that is doing the short selling.
By my reckoning the following course of events takes place.
I buy shares in company x, which for my convenience are held in a nominee account.
These shares, combined with shares in company x owned by others, are bundled up and lent to a hedge fund, in exchange for a fee which the holder of my shares retains.
The hedge fund short sells shares in company x.
The hedge fund then buys back the shares in company x once they have gone down, and returns them to the lending institution, banking the profit.
My shares in company x are now worth less than before they were lent out.
Admittedly the hedge fund could make a loss because the shares could go up, but in the current market that is not very likely. Especially given the volumes that they can trade and the fact that they can all jump on the bandwagon to their mutual benefit.
This of course may only be my mis-guided way of thinking, and if anyone knows better then please let me know.
