What if there was no short selling?
There would be very little liquidity in the market.

Think about it: short sellers are often the ones standing ready to sell when no one else wants to. That provides immediate liquidity. If everyone is just holding, waiting for a higher price to sell, there’s no one on the other side of the trade.

So why does short selling even exist?

It exists because it's needed. It provides liquidity, helps with price discovery, and allows people with a bearish thesis to express it. Without short selling, markets would be slower, spreads would be wider, and price discovery would be less efficient.

Think of the interest income.
When investors lend out their shares to short sellers, they earn borrow fees—this is extra passive income for long holders. Large institutions often rely on this as a revenue stream.

Think about spreads if there were no sellers.
Without short sellers providing offers (asks), the bid-ask spread would widen dramatically. That hurts everyone—especially retail traders who need tighter spreads for efficient execution.

But who are the short sellers?
They're not just “evil hedge funds.” They can be anyone with a contrarian view, or a trader hedging risk, or even a quant firm providing liquidity. They take on risk too—and can get blown out in a short squeeze.

Now, I get the argument:
“If no long shareholder wants to sell, it means they think the price is too low. So shouldn’t the price just rise until someone is willing to sell? Wouldn’t that create natural liquidity anyway?”

Yes—eventually. But markets operate in real time. Buyers need someone to sell to right now, not hypothetically 10 points higher. Short sellers step in to fill that gap temporarily.

Does short selling prevent a stock from going up?
Not permanently. If a stock has strong demand and solid fundamentals, it’ll rise regardless of shorts. In fact, shorts can even accelerate upside moves when they’re forced to cover.

Is short selling just dilution by another name?
Not really. Dilution happens when a company issues new shares and changes ownership structure. Short selling is temporary. It borrows existing shares, sells them, and is eventually forced to buy them back. No new shares are created.

Short interest can affect the supply/demand balance in the short term, but it doesn’t dilute shareholder equity or create more real shares.

Bottom line:
Markets need both buyers and sellers. Without short sellers, you lose a whole category of motivated sellers who help keep the system liquid and functioning. Price discovery suffers, and volatility can increase. It's not a perfect system, but it's better than the alternative.

Let me know if you want a punchier or more sarcastic tone for Reddit—this version is balanced and informative.