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 BankingInvestment BankingInvestment banking is a specialized banking stream that facilitates the business entities, government and other organizations in generating capital through debts and equity, reorganization, mergers and acquisition, etc.read more 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 RolesInvestment Banking RolesInvestment bankers play diverse roles and responsibilities in a company as analysts, associates, vice president and managing director. They handle the front, middle, and back-office responsibilities to cater to the clients with all sort of financial services.read more 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.
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Source: Sell Side vs Buy Side (wallstreetmojo.com)
Firms Involved
- Sell Side includes firms like Investment Banking, Commercial Banking, Stock Brokers, Market MakersMarket MakersMarket makers are the financial institution and investment banks which ensures enough amount of liquidity in the market by maintaining enough trading volume in the market so that trading can be done without any problem.read more, and other Corporates.
- Buy Side includes Asset Managers, Hedge FundsHedge FundsA hedge fund is an aggressively invested portfolio made through pooling of various investors and institutional investor’s fund. It supports various assets providing high returns in exchange for higher risk through multiple risk management and hedging techniques.read more, 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
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Source: Sell Side vs Buy Side (wallstreetmojo.com)
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 informationFinancial InformationFinancial Information refers to the summarized data of monetary transactions that is helpful to investors in understanding company’s profitability, their assets, and growth prospects. Financial Data about individuals like past Months Bank Statement, Tax return receipts helps banks to understand customer’s credit quality, repayment capacity etc.read more & 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-sideBuy-sideThe term "buy-side" refers to entities that advise their clients like individual investors and institutional buyers on investments and securities purchases. Private equity firms, mutual fund companies, life insurance companies, unit trusts, hedge fund companies, and pension fund entities are examples of buy-side firms.read more analysts for the investment decisions makes them fetch higher pay than the sell-side analysts. But there may always be exceptions.
Buy-Side vs. Sell Side Video
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This article has been a guide to Sell Side vs. Buy Side investment banking. Here we discuss the top differences between sell and buy side analysts along with their skill requirements. You may also have a look at the following articles –
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Awesome article. Very high quality. Greets from Germany
Thanks for your kind words!
Very nice article. It enhanced by understanding.
Good article.. very easy to comprehend
Great job! Very informative
thanks Shivani!
Brilliant Article Man! Gives a very clear and precise understanding to the concepts!
thanks AB!
Excellent Article which covers the basiscs
thanks Vikram!
What a nice visual article of this topic! It was so simple and easy to follow. Thank you for taking the time to share this.
thanks Christie! :-)
Such an amazing explanation…thanks alot dheeraj :)
thanks Vartika. happy to see that you liked this article.
Hi Dheeraj,
Maybe I didn’t quite understand the hierarqhy part, but aren’t Analysts superior to Associates in ER?
Great job by the way
Hi Marcel,
In ER, Associates are senior to Junior Analysts. Associates in turn report to the Senior Analyst.
Thanks,
Dheeraj
SUCH A HARD WORK TO EXPLAIN A DIFFICULT TOPIC IN A EASY WAY OF UNDERSTANDING. YOU CAN BE A GOOD TEACHER. EXCELLENT WORK, WE APPRECIATE YOUR DEDICATION & INVOLVEMENT IN PREPARING THIS ARTICLE. THANKS DHEERAJ.
Thanks Shrisai!
Very crisp indeed
thanks Piyush!
As what you replied previously – a large firm, like JP. Morgan, can be both sell-side and buy-side. Yet, is there any conflict of interest of being buy-side and sell-side at the same time? What I am concerned about is insider-trading if a firm can be on the both side. Thanks for your answer!
Hi Danny, I totally agree with you on this. Infact the regulators are also concered with this. That is why IB firms have a very strict policy where they create Chinese walls – sell side and buy side are not allowed to interact. If they are required to interact with each other, they are moderated by the compliance team.
Quite insightful, amazing article
thanks Orenolu!
Such nice way of explaining…. Thanks Dheeraj !!
thanks Rashid!
It awesome, it has broadened my knowledge in investment banking and think am best suited in buy side… Thanks alot…
thanks Nelson. I am glad you liked the article.
Nicely written, just a small one, could you check the compensation part in description and infographics.
Awesome Insight and true picture for typica buy and sell analyst
thanks Amrita :-)
Hi, Amazing way of explanation..you made it so easy to understand the difference.
thanks Rajeena!
Hi Dheeraj,
Thanks for such a simple and elaborate explanation of both the terms. Please also provide a glance on credit research and equity research.Thanks a lot..
Thank you Nidhi!
Dheeraj, one more awesome posts. Hats off to you for your incredible and knowledgeable posts. If anyone follow your posts, surely he will become a master in Finance :) Thank you for knowledge sharing…
thank you James!
Hi, Thanks for this content, I always enjoy it, the way it is written is excellent. The Infograph helps a lot.
Thank yo Florence!
Thanks A lot for such an insightful detail on sell side vs Buy side. I had a small question. Can any firm be both a Sell side and a Buy side firm?
Hi Prachi,
A large investment bank with an asset management division as well as a brokerage arm can be both sell side as well as buy side. For example – large investment banks like JPMorgan etc.
Thanks,
Dheeraj
Amazing article.
thanks Neeraj :-)