The buy side refers to those financial institutions, such as pension funds and hedge funds, that have money to invest, while the sell side refers to those firms, such as investment bankers and commercial bankers, that assist others in making investment decisions. These differing roles result in a number of differences between the two sides of the financial markets, which are as follows:
- Advice. A sell side firm is selling advice, such as in regard to raising money or acquiring a business. A buy side firm may use this advice as it buys and sells assets.
- Financial instruments. A sell side firm is a bank or similar entity that is selling some type of financial instrument, while the buy side firm is deploying capital over which it has control; this may include buying the instruments being marketed by the sell side.
- Goals. The goals of a sell side firm are focused on closing deals in order to earn commissions. The goals of a buy side firm are to generate investment returns that exceed the general indices.
- Income. People working on the sell side can earn substantial incomes, but the real income potential is on the buy side, where they can earn massive amounts based on their investment performance.
- Organizational structure. A sell side firm tends to be more tightly organized in a hierarchical manner, while a buy side firm is leaner, with just a few people supporting a portfolio manager.
- Research distribution. The research that a sell side firm creates is actively marketed to the investing public. Conversely, the research that a buy side firm creates is kept in-house, so that the company can be the sole beneficiary of the information.
- Risk taking. A sell side firm does not have money to invest, so its risk level is low. A buy side firm may take significant risks in its deployment of capital.
- Working hours. Someone working for a sell side firm can expect to work long hours to drum up new business and create research. The hours are somewhat reduced for a buy side person.