Sell Side vs Buy Side – If you are in the Investment Banking industry, it is essential to know the difference between Sell side vs 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. So let’s see the major highlights of Sell side vs Buy side. We will cover the following points:
- Sell Side vs Buy Side Infographics
- What is Sell Side and Buy Side
- Firms Involved
- What they do?
- Goals
- Sell Side Analyst
- Buy Side Analyst
- Skillset Requirements
- Compensation
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Sell Side vs Buy Side Infographics
Please go through the below infographics for a quick comparison between the Sell Side and Buy Side.
Reading time: 90 seconds
What is a Sell Side and Buy Side?
- Sell side includes the entities which facilitate the decision making of the buy side.
- Buy side includes entities that are involved in making Investment Decisions.
Sell Side vs Buy Side – 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 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 detailed analysis of the Quarterly results, Balance sheet or any other published data.
- 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 (Sell Side) for taking their investment decisions.
- Buy Side essentially have a pool of funds which is used for investing
- So we can say that Sell side entities provide services to the Buy side entities for taking Investment decisions.
Goals
- The goal of a Sell Side is advised 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 the Sell Side Analyst is to recommend a Buy or a Sell recommendation for a particular security.
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 buy side 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.
Skillset Requirements:
It is generally seen that higher analytical skills & financial knowledge are required for the Buy Side Analysts than the Sell Side Analyst. The reason for this is that Buy Side Analysts are themselves responsible for making the investment decisions.
So let’s see what are the skills required for the Sell Side and the Buy Side Analysts:
Sell Side Analyst 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 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
Buys Side vs Sell Side – Compensation
A requirement of higher skill-sets and knowledge for buy side analysts for the investment decisions make them fetch higher pay than the sell-side analysts. But there may be always exceptions.
Conclusion
Your decision to make your career in Buy-side or Sell-side will depend on your goals and where you see yourself. I hope this article has helped you to distinguish the Sell Side and Buy Side clearly. So, which analyst are you – Buy Side analyst or a Sell side analyst?
Buy-Side vs Sell Side Video
Useful Posts
- What is Equity Research?
- Equity Research Analyst Skills
- How to write an equity research report?
- Investment Banking vs Equity Research Differences
- Options after Equity Research?
- Equity Research Job – What to expect?
- Top Equity Research Books
- List of Equity Research Companies
- Equity Research Interview Questions and Answers
Shivani says
Great job! Very informative
Dheeraj Vaidya says
thanks Shivani!
AB says
Brilliant Article Man! Gives a very clear and precise understanding to the concepts!
Dheeraj Vaidya says
thanks AB!
Vikram Patil says
Excellent Article which covers the basiscs
Dheeraj Vaidya says
thanks Vikram!
Christie K. says
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.
Dheeraj Vaidya says
thanks Christie! 🙂
Vartika says
Such an amazing explanation…thanks alot dheeraj 🙂
Dheeraj Vaidya says
thanks Vartika. happy to see that you liked this article.
Marcel Prado says
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
Dheeraj Vaidya says
Hi Marcel,
In ER, Associates are senior to Junior Analysts. Associates in turn report to the Senior Analyst.
Thanks,
Dheeraj
shrisai says
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.
Dheeraj says
Thanks Shrisai!
Piyush Jain says
Very crisp indeed
Dheeraj says
thanks Piyush!
Danny says
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!
Dheeraj says
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.
orenolu bunmi says
Quite insightful, amazing article
Dheeraj says
thanks Orenolu!
Rashid says
Such nice way of explaining…. Thanks Dheeraj !!
Dheeraj says
thanks Rashid!
NELSON says
It awesome, it has broadened my knowledge in investment banking and think am best suited in buy side… Thanks alot…
Dheeraj says
thanks Nelson. I am glad you liked the article.
Deepak Sharma says
Nicely written, just a small one, could you check the compensation part in description and infographics.
Amrita says
Awesome Insight and true picture for typica buy and sell analyst
Dheeraj says
thanks Amrita 🙂
Rajeena says
Hi, Amazing way of explanation..you made it so easy to understand the difference.
Dheeraj says
thanks Rajeena!
Nidhi Malik says
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..
Dheeraj says
Thank you Nidhi!
James Hartley says
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…
Dheeraj says
thank you James!
Florence McShaw says
Hi, Thanks for this content, I always enjoy it, the way it is written is excellent. The Infograph helps a lot.
Dheeraj says
Thank yo Florence!
Prachi Mishra says
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?
Dheeraj says
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
Neeraj says
Amazing article.
Dheeraj says
thanks Neeraj 🙂