Difference Between Sell Side and Buy Side
Sell side can be defined as firms that tend to sell, issue or trade-in financial securities and it includes corporations, advisory firms and investment banks whereas buy side can be defined as firms that tend to buy financial securities and it includes pension funds, investment managers, and hedge funds.
If you are in the Investment Banking industry, it is essential to know the difference between the Sell and buy side. Yet the irony is that many of us are still unaware of these very important terms. Many a time, I have seen that students are not only confused between these two terms but also about its usage in the context of Investment Banking Roles in the industry. Statistics say that the Sell-side makes up one half of the Finance Market, and the Buy side makes the other half.
- The sell-side includes the entities which facilitate the decision making of the buy-side.
- The buy-side includes entities that are involved in making Investment Decisions.
Firms Involved
- Sell Side includes firms like Investment Banking, Commercial Banking, Stock Brokers, Market Makers, and other Corporates.
- Buy Side includes Asset Managers, Hedge Funds, Institutional Investors, Retail Investors.
- Buy side firms can be bigger in terms of the operations, but the number of analysts may be lesser. These Analysts often interact with the Sell Side Analysts.
- On the other hand, the number of Analysts in the Sell Side Firms is higher as these analysts are dedicated to the analysis of specific sectors or specific companies.
What do they do?
- Sell side companies closely keep track of the Stocks, the performance of various companies, and also project their future financials based on various analyses & trends. They come up with their research recommendations (target price) in their equity research reports.
- Sell side companies (equity research) essentially “sell ideas” to the clients, and in most cases, these ideas are communicated for free.
- Their work revolves around Financials & Annual reports, which includes a detailed analysis of the Quarterly results, Balance sheet, or any other published data.
- The buy side includes the entities that are involved in deploying their Capital. They may refer to the analysis or price given by the investment Banks for taking their investment decisions.
- Buy Side essentially have a pool of funds that is used for investing.
- So we can say that sell side entities provide services to the buy side entities for making investment decisions.
Sell Side vs. Buy Side Infographics
Goals
- The goal of a Sell-Side is to advise on research and close the deal.
- Sell side analysts carry out research, and based on the same, they convince their investors to trade through their firm’s trading desk.
- Whereas, the goal of the Buy side firms is to beat the indices and generate Investment returns for their clients.
Sell Side Analyst
- The Analysts of the Sell side provide greater insights into Trends, Analysis, and projections of Financials
- They come up with recommendations & Research reports which are used to make investment decisions for their clients.
- One major point of difference is: Sell side analysts do their own research and analysis and create their reports. These reports are available in the public domain.
- The job of an analyst is to recommend a Buy or a Sell recommendation for a particular security.
Skills Requirements
- Excellent Analytical & Quantitative skills
- Strong writing and communication skills
- Expertise in Excel, Powerpoint & Word.
- Ability to quickly evaluate & analyze financial information & companies
- Ability to prioritize Task
- Ability to work on multiple engagements
- Commitment to obtaining Outstanding results
- Ability to work for long hours
Buy Side Analyst
- A very interesting point of difference you will find here is that the reports which are created by the Buy Side Analysts are not available publicly.
- These analysts use the reports created by many Sell Side Analysts and carry out their own analysis further to come at an investment decision.
- Here, the job of the Buy Side Analyst is not just to give a Buy or Sell decision but to make an investment decision adhering to the company strategy.
Skills Requirement
- Strong & Intellectual eye for investment opportunities
- Monitoring the Market developments
- Ability to create productive, timely & high-quality reports for investment decisions;
- Ability to analyze Risks and Industry characteristics
- Ability to constantly monitor Portfolio performance
- Keep updated with the economy & global markets
- Expertise in excel, word & PowerPoint;
Compensation
A requirement of higher skill-sets and knowledge for buy-side analysts for the investment decisions makes them fetch higher pay than the sell-side analysts. But there may always be exceptions.
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Buy-Side vs. Sell Side Video
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