What does my broker get when I sell short?
There is a commision per transaction that goes to your broker (when you open or "sell short" and when you close out or "buy to cover" the position). Your broker also gets additional compensation in the form of rebates by securities lending firms and also as margin interest if you use margin to open or maintain your short position. This is done as follows:
Your broker will have to get the shares for you to sell on the open market so they need to borrow them from a willing lender (this is called Securities lending and is a way for a long-term shareholder to generate income from shares that will remain in the account by lending them out).
The way this works is that your broker will use the proceeds from the short sale as collateral that needs to be posted to the lender of the shares (i.e. you don't get any interest on the original proceeds of the sale, nor can you use them for anything). In fact, your broker will need to post 102% of the total market value of the borrowed shares and this is marked to market every day. If the position moves against you, your broker needs to post more collateral and this ties up more of your margin and might generate margin interest for you to be paid to your broker (if you are using margin). The lender of the shares (i.e. the securities lending institution) gets to invest this collateral at market rates and they get to keep the interest.
At the same time, depending on how difficult it is to borrow a certain stock, they might pay your broker a "rebate" for facilitating the transaction so this is an incentive for your broker as well (the harder to borrow a stock it is, the less of a rebate the sec lending institution pays your broker).
When the short position is closed out at a profit or at a loss the profit or loss is reflected in your account and the collateral is released to your broker and to your account.