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. 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. 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.
- 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., 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., 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 reportsEquity Research ReportsAn equity research report is a document prepared by equity research analysts or financial brokers that focuses on a specific stock, industry, currency, commodity, or fixed-income instrument, as well as a geographic region or country. It includes recommendations on why to buy or sell that stock, as well as DCF modeling, relative valuations, and so on..
- 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 reportsAnnual ReportsAn annual report is a document that a corporation publishes for its internal and external stakeholders to describe the company's performance, financial information, and disclosures related to its operations. Over time, these reports have become legal and regulatory requirements., 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
- 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 deskTrading DeskA trading desk is a section within a bank or company that buys and sells securities such as bonds, shares, currencies, and commodities to facilitate their own or clients' trades in the financial markets, ensuring market liquidity..
- 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.
- 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. & 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.
- 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;
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. 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
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 –