Difference Between Sell Side and Buy Side

Knowing the difference between the sell-side and buy-side is essential 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. Yet the irony is that many of us are unaware of these important terms. Many a time, I have seen that students are not only confused between these two terms but also about their 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. For example, statistics say that the sell-side makes up one-half of the finance market, and the buy-side makes up the other half.

  • The sell-side includes the entities which facilitate the decision-making of the buy-side.The buy-side consists of entities that are involved in making investment decisions.

You are free to use this image on you website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Sell Side vs Buy Side (wallstreetmojo.com)

Firms Involved

  • Sell-side includes firms like investment banking, commercial banking, stockbrokers, 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, and retail investors.Buy-side firms can be bigger in 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 and various companies’ performance and project their future financials based on multiple analyses and trends. Then, 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.read more.Sell-side companies (equity research) essentially “sell ideas” to the clients, and these ideas are communicated for free in most cases.Their work revolves around financials and 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.read more, including a detailed analysis of the quarterly results, balance sheet, or 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 making their investment decisions.Buy-side essentially has a pool of funds that is used for investing.So, we can say that sell-side entities provide services to the buy-side entities to make 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 based on the same. They convince their investors to trade through their firm’s

  • The goal of a sell-side is to advise on research and close the deal.Sell-side analysts carry out research 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.read more. The buy-side firms aim to beat the indices and generate investment returns for their clients.

Sell-Side Analyst

  • The sell-side analysts provide greater insights into trends, analysis, and financial projections.They develop recommendations and research reports to make investment decisions for their clients.One major difference is that sell-side analysts do their 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 and quantitative skillsStrong writing and communication skillsExpertise in Microsoft Office suite- Excel, PowerPoint, and WordAbility to quickly evaluate and 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 and companiesAbility to prioritize taskAbility to work on multiple engagementsCommitment to obtaining outstanding resultsAbility to work for long hours

Buy Side Analyst

  • You will find a very interesting difference here: the buy-side analysts’ reports are not publicly available.These analysts use the reports created by many sell-side analysts and further carry out their analysis to make an investment decision.The buy-side analyst’s job is not just to give a buy or sell decision but to make an investment decision adhering to the company strategy.

Skills Requirement

  • Strong and intellectual eye for investment opportunitiesMonitoring the market developmentsAbility to create productive, timely, and high-quality reports for investment decisionsAbility to analyze risks and industry characteristicsAbility to constantly monitor portfolio performanceUpdated with the economy and global marketsExpertise in Microsoft Office suite- Excel, Word, and 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

This article is a guide to Sell Side vs Buy Side investment banking. We discuss the top differences between buy side and sell side. You may also have a look at the following articles: –

  • Investment Banking vs. Equity ResearchOptions after Equity Research?List of Equity Research CompaniesEquity Research Interview Questions and Answers