I saw multiple times on Reddit the saying that selling a stock short would make them long cash, which they can then use to cover a short cash position, but to me it’s implying we would borrow the short stock unsecured which is not true I believe?
Maybe brokers are not saying it explicitly but my understanding is that the stock borrow is vs cash collateral (this cash collateral receives some interest, although some brokers might have a minimum notional threshold before paying out anything). In either case there’s still interest accruing on the initial short cash balance, which may or may not be offset by the interest earned (minus the stock borrow fee) on the short sale proceeds.
Is my understanding correct?
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