Understanding Buy Side and Sell Side: Meaning, Responsibilities and Goals

The financial market is growing rapidly every year as the business has become more globalized. In order to meet the demands of these organizations, various institutions have been formed. However, these institutions have been further categorized to understand their functions and operations better. Two notable and widely used examples of these categories in the financial world are buy-side and sell-side. These are nothing but financial industry terms for investment banks and managers.

Buy Side

The buy side generally includes firms that have capital; they are in search of assets and opportunities to buy assets. The buy side refers to the institutes and firms that are involved in the decision-making process linked to investment. Buy Side Research services providers or analysts manage portfolios for the owner or investors of the capital and get paid a fixed percentage of assets under management.

These organizations or institutes follow a fiduciary duty to work in favor of their clients and put the interest of capital owners above their own. The clients always have a choice of handing over their decisions to the buy side analysts or managers, who are responsible for the capital. Some popular examples of buy-side are retail investing, private equity, hedge funds, venture capital, etc.

Sell Side

Sell-side agencies or companies are the ones that target to pitch the assets and opportunities for selling. They usually represent the entities that ease the decision making for the buy side. The brokers and traders are the managers of this side. They hold the assets for a short time and earn their revenues from charges related to transactions. They don’t have to abide by high levels of fiduciary, but they are under an obligation to provide disclosure honestly and remain fair in their dealings. Institutions that fall under the Sell Side Research services category are market makers, investment banks, sales and trading, brokerage firms, etc.

Differences

Both the sell side and buy side have the disposition to add or detract value from the bottom line of their customers, but there is a significant difference between managing client’s capital and devising forecasts. Hence, for a better understanding of these two terms, you need to be clear about the responsibilities buy side and sell side firms.

Responsibilities

The main work or liability of a buy-side firm is to use their capital. They often utilize the price or analysis reference provided by the sell-side institutions, like investment banks, to make investment decisions. Also, they maintain a fund for investing activities.

On the other hand, sell-side firms closely monitor the performance of different companies and stocks, making projections on the basis of analysis and trends. This allows them to create a research report that contains the research recommendations. In most cases, these firms sell ideas for free.

Goals

Where the buy-side firms aim at making the profit from the investment they get from their clients, the sell-side managers strive to give advice and close the deals.

If you want to know more about the sell-side and buy-side or are looking for sell-side or buy-side and Financial Modeling and Analysis services, contact Penterra Analytics. Penterra provides you with a wide range of market research and analytics services.