I've never really looked into shorting, so sorry that this inevitably sounds really dumb, but if a short is public and works as that kind of signal, can it be abused? Say, if a big investment bank shorts a stock, and then advise all their clients to do so, and in some way convince a significant number of others to short that stock. Does it eventually become a sort of self-fulfilling prophecy where the number of shorts can damage confidence so much that they either sell or sell+short themselves and the stock ends up spiralling? If enough people wanted to take down a stock, is there some kind of protection that stops them doing this?
I know generally you can just start selling low or whatever, but shorting would make you a huge profit if this worked while selling low potentially a loss?
Shorting is absolutely open to abuse, especially naked shorting (i.e. you sell the stock without buying it first). Google the CEO of Overstock.com. He had a lot to say about naked shorts being abused. Regular shorts aren't abused as much because the company's dividends have to be paid to the owner by the borrower (i.e. the short) this makes the varying cost of holding a short on a good company high. I also never understood why people lend their stock to shorts. You're just helping them put downward preassure on a position that you're long.
I know generally you can just start selling low or whatever, but shorting would make you a huge profit if this worked while selling low potentially a loss?