Buy. Sell. They seem like simple concepts. When you buy something, you hand over money and get a product or service in return. When you sell something, you’re the one collecting the cash for that product or service. In the financial market, it’s similar, with a few twists.
While professionals on the buy and sell side spend a good deal of time looking for good deals, there are some meaningful differences between analysts and their motivations on each side. Here’s a look at the buy side vs. the sell side.
What is the Buy Side?
The buy side is the side of the capital market that buys and invests big quantities of securities (stocks, bonds, etc) as part of money and/or fund management. On the buy side, professionals and investors have money to buy securities, including common shares, preferred shares, bonds, derivatives, and other products that are sold—or issued—by the sell side of the financial markets.
Recommended: Stocks vs. Bonds: Key Differences for Investors
For instance, a fund management or asset management firm might run a fund or set of funds that invests its clients’ money in a variety of securities or other items that match the fund’s objectives. Think of the buy side as the firms that purchase investment securities—they could be mutual funds, pension funds, insurance firms, and hedge funds—for their own funds or accounts or for investors.
The role of the buy side is to:
• manage client money
• make decisions about investments (whether to buy, sell or hold securities)
• try to get the best return on capital
• do research on investment opportunities
• recruit investors and capital to manage
• conduct valuations and financial modeling
• grow assets under management
Buy Side Goals
The goal of the buy side is to beat the indexes they follow and generate financial returns for clients.
Buy siders put capital (that is, money) 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 make money by “buying low and selling high” when they trade securities. They work to identify and buy underpriced, undervalued, or high-potential securities for clients.
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 is the Sell Side?
The sell side is the side of the financial market that 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 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.
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 mergers and acquisitions
• market, promote, and sell securities
• provide research of 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.
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 initial shares.
Buy Side vs. Sell Side: Key Differences
Buy and sell side are like two sides 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. |
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.
While these terms typically refer to professionals on either the buy or sell side, of course investors might also find themselves looking to buy or sell. With SoFi Invest® online investing, members may be able to participate in upcoming IPOs and trade stocks, ETFs, and crypto. What’s more, you can choose between active investing or automated investing. Whatever your preference, you can manage your account from the convenient mobile app.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected] Please read the prospectus carefully prior to investing. Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.
New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
SOIN20302
