The buy side and sell side are two fundamental aspects of the financial markets. As it sounds the buy side refers to investment companies (including pension funds, hedge funds, money managers) that buy securities for their clients. The sell side is involved in the creation, selling, or issuing of the securities that the buy side then purchases.
Within the buy side and sell side there are different roles and dynamics at play.
What Is the Buy Side?
The buy side is the part of the capital market that buys and invests large quantities of securities as part of money management and/or fund management. On the buy side, professionals and investors invest in securities, including common shares, preferred shares, bonds, derivatives, and other products that are sold — or issued — by the sell side.
Think of the buy side as the firms that purchase investment securities for their own funds or accounts or for investors.
For instance, a fund management or asset management firm might run a fund or set of funds. Naturally, they look for assets that match the fund’s objectives. A buy-side portfolio manager might learn of a new tech product that sounds promising. After doing research on the company and determining whether it was a wise investment, the PM might purchase shares of that company.
💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.
What Is the Role of a Buy-Side Analyst?
Both the buy side and the sell side employ ranks of analysts that in some ways do similar work — but with different aims.
Buy-side analysts do extensive research before recommending whether their firm should purchase a certain security. The goal of a buy-side analyst is to be right as often as possible — because being correct corresponds to profit for their firm and their clients.
In addition to gathering their own information and conducting analysis on a given sector, buy-side analysts get to know the best analysts on the sell side whose research is relevant and reliable.
The relationship between buy-side and sell-side analysts can be seen as mutually beneficial. The more trustworthy a sell-side analyst’s research is, the more likely the buy-sider will be to recommend purchasing securities from the sell-side firm. Thus the buy-side indirectly plays into the sell-side’s compensation.
Buy-Side Goals
The goal of the buy side is to beat their benchmark indexes, and generate financial returns for clients.
Buy-siders put capital to work. They typically have a pool of funds they use to invest in securities. Professionals on the buy side typically work in portfolio management, wealth management, private equity, hedge funds and sometimes venture capital. Buy-side companies work to identify and buy underpriced, undervalued, or high-potential securities for clients in order to make the highest profit on their trades.
Buy-side investors can place large-scale transactions to keep trading costs low. They also have access to a wide variety of trading resources to help them identify, analyze, and quickly make a move on investment opportunities, often in real time. Buy siders must disclose their holdings in a document called a 13F, and this information is available publicly each quarter.
What Happens on the Buy Side
The role of the buy side is to:
• Make decisions about investments (whether to buy, sell, or hold securities)
• Do research on investment opportunities
• Recruit investors and their capital
• Conduct valuations and financial modeling
• Get the best return on capital in order to grow assets under management
What Is the Sell Side?
The sell side of finance deals with creating, promoting, and selling securities that can be traded to the public. The sell side handles all activities related to selling securities to the buy side. That can include underwriting for initial public offerings (IPOs), providing clearing services, and developing research materials and analysis.
Professionals on the sell side represent companies or entities that need to raise money. They do it by selling or issuing securities. The sell side is made up primarily of advisory firms, banks, or other kinds of companies that facilitate selling of securities for their client companies.
What Happens on the Sell Side
The role of the sell side is to:
• Advise corporate clients on large transactions and financial decisions
• Help clients raise capital, be it debt or equity
• Advise clients on corporate mergers and acquisitions
• Market, promote, and sell securities
• Provide research on listed companies (called equity research)
• Conduct valuations and financial modeling
• Create liquidity for securities that are listed
Sell siders keep close track of the performance of specific companies they track, keep track of stocks, and model and project future financial performance and trends. They come up with research recommendations and target prices and sell ideas to clients.
Sell siders spend a lot of time analyzing balance sheets, quarterly results, and any other data they can find on a company. Sell-side analysts aim to give deeper insights into trends and projections; they issue reports and recommendations which are used to make investment decisions for clients.
Professionals focused on the sell side often have jobs in investment banking, sales and trading, equity research, market making, and commercial or corporate banking.
💡 Quick Tip: It’s smart to invest in a range of assets so that you’re not overly reliant on any one company or market to do well. For example, by investing in different sectors you can add diversification to your portfolio, which may help mitigate some risk factors over time.
What Is the Role of a Sell-Side Analyst?
The job of a sell-side analyst is to vet different stocks or other assets and sell them to the buy side. In that sense, sell-siders are an essential part of the marketing of different securities.
Typically a sell-side company employs many analysts who help shape the security offerings across sectors and industries. An analyst who covers a certain sector goes deep in that area, talking to a range of people who are knowledgeable about each company and its products — including customers, suppliers, competitors — and building models that help assess a company’s status.
Sell-side analysts are the ones who rate a company’s stock as buy, sell, or hold. It’s generally taken as an evaluation of the stock’s performance rather than the company’s.
An analyst’s success hinges to a large degree on their access to the best and most useful information about a stock, its price target, and their estimates about the stock’s performance. Taken together, the estimates of different analyses are sometimes called the consensus estimate. That’s how buy-siders evaluate the merits of different securities and whether to buy.
Sell-Side Goals
Sell-side companies make money through fees and commissions earned when they sell — which means the more deals they make, the more buy-side firms earn. Market making firms are part of the sell side and help provide the liquidity the market needs to make transactions happen.
Investment banks tend to dominate the sell side of the financial markets; they underwrite stock issuances, sell to institutions and individuals and take proprietary positions in securities.
The most high-profile sell side activity is underwriting IPOs, acting as a buffer between companies going public and the investing public set to buy IPO shares.
Buy Side vs Sell Side: Key Differences
Buy side and sell side are like two faces of the financial and capital markets coin, but there are some key differences between the two.
| Buy Side | Sell Side |
|---|---|
| Buy-siders do their own research, but their reports are proprietary and only available to buy-side clients. | Sell-siders do their own research and reports and make them publicly available. |
| Buy-side research analysts tend to build a list of sell-side analysts in relevant sectors from which to get reports, technical analysis, and information they rely on. | Sell-side analysts dig deep in their research, get narrow in their focus, and typically develop an area of strong expertise. |
How Do the Buy Side and Sell Side Earn a Profit?
Because buy-side firms raise money from wealthy investors and institutions and invest on their behalf, buy-siders profit from management and/or performance fees.
Meanwhile, sell-side firms earn money from the commissions they get from facilitating deals, and from marketing, selling and trading securities.
The Takeaway
The capital market is made up of the buy side and the sell side. Whereas the buy side aims to get the best value from investments in order to bring in greater returns for clients, the sell side aims to help clients raise capital through the sale of securities.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
FAQ
Is the buy side more lucrative than the sell side?
Careers on the buy side are generally considered higher paying than on the sell side. This is in part due to the amount of risk a buy sider takes on when selecting securities, and the premium placed on making a profit.
Do people move from the buy side to the sell side?
People do move from one side to another, but the more common transition is from the sell side to the buy side, owing to the allure of higher compensation and in some cases better hours.
Are traders on the buy or sell-side?
Traders are on the sell side. Traders are considered market makers in that they provide liquidity in the markets.
Phot credit: iStock/filadendron
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