How does the broker benefit from shorting stock?

When someone shorts a stock, they pay a borrow fee to the lending broker. Some brokers share a portion of that borrow fee with the owner of the loaned stock. Lending fees can be as low as 0.25% a year and I have seen a few as high as 900%.

Some brokers still charge commissions so for those that still do, there's that benefit.

The borrowed shares result in another transaction (shorter and 3rd party buyer) so there are bid/ask spreads to be made, possible payment for order flow, etc.).

Since the shorter receives a cash credit to his account, his broker earns interest on the cash balance and this is a major source of revenue for all brokers.

The easiest way to answer this is:

MOST of the time, when you short a stock, the broker is loaning you shares held by the brokerage in their own accounts, and since they're charging you a fee to borrow the shares, they make money on stock they can still resell to someone else later once you cover the short position. This can be very lucrative for the broker.

Don't forget that when you hold a short position, the brokerage is going to continue assessing a fee for the duration of the short - it isn't necessarily a one-time fee. If you hold a short position beyond the end of the month, for instance, the brokerage might charge you another fee to continue the position into the new month, which obviously deducts from your anticipated profits when covering.

By the way, just because you're shorting a stock doesn't mean you're selling it to someone else. You're borrowing shares you don't own, or more precisely, the VALUE of those shares at the time the short position is created. What you're anticipating with the short is that the stock's price will fall and you can then "buy" the shares back at the lower price, pocketing the difference (minus fees) as profit.

Good luck!