You are sort of correct. Brokers and exchanges are obligated to park customers' money in an escrow, and may even be required to insure them [1] for a good meas

You are sort of correct. Brokers and exchanges are obligated to park customers' money in an escrow, and may even be required to insure them [1] for a good measure. Under no circumstance are customers' funds lent out. So where do they get money from to lend? Brokers lend either their own money or get into arrangements with liquidity providers. These are big institutions/hedge-funds etc., who offer to lend money in exchange for attractive returns. They get into a different agreements and are fully aware of risks they are taking on. [1] https://www.sipc.org https://www.sipc.org