What is a short sale in the context of trading?

In the context of trading, a short sale refers to the practice of borrowing shares of a security that an investor believes will decrease in value. The investor then sells those borrowed shares at the current market price, anticipating that they can repurchase the same shares later at a lower price. Once the price drops, the investor buys back the shares, returns them to the lender, and profits from the difference between the selling price and the repurchase price.

This strategy is based on the expectation that the stock's price will decline, allowing the investor to realize gains from the transaction. It's a common practice in trading and can be a compelling way to capitalize on perceived overvaluations in the market. However, it also involves significant risk, as the potential for losses is theoretically unlimited if the price of the stock rises instead of falls.

The other choices outlined do not accurately represent a short sale. Buying shares with the hope of price increases indicates a long position, while holding assets indefinitely conveys a buy-and-hold strategy, and selling without ownership is more aligned with concepts like naked short selling, which is a different trading strategy altogether.