The buy side versus the sell side in the stock investment world refers to the contrast between the primary accumulators of stocks and the primary distributors of stocks.
The buy side of the financial markets are the institutions that purchases and invests in large position sizes of stocks as money managers and fund managers. The sell side of the financial market are the institutions which creates, promotes, and sells stocks to the fund managers along with the general public of investors.
The buy side refers to investment firms that buy equities and includes mutual fund managers, hedge funds, exchange traded funds, and pension funds. The sell side refers to the companies and investment firms that issue IPOs, sell secondary stock offerings, or give sell side advice, like large investment banks, investment advisory services, and companies that go public and issue their own equity sale as an initial public offering.
The buy side is made up primarily of large investors in companies profiting from the capital gains of what they buy, while the sell side are more like the sales people advising, issuing, and facilitating the sell of stocks and profiting from the people that buy stocks.
Investment banking does business and profits on both the buy side and sell side of the stock market by facilitating every step in the process of a stock going public, being traded, and becoming a holding in an investment fund.
The buy side:
- Manages client capital.
- Makes buy, hold, and sell decisions for clients.
- The goal is return on capital as well as return of capital.
- Focuses on portfolio management.
- Focuses on risk adjusted return.
- Completes investment research.
- Invests based on fundamentals.
- Markets their fund to potential investors.
- Focuses on assets under management.
The sell side:
- Operates an equity research firm for listed stocks.
- Provides financial models and fundamental valuation services for clients.
- Advises corporations on acquisitions and mergers.
- Facilitates raising capital through issuing debt.
- Facilitates raising capital through initial public offering of equity.
- Facilitates raising capital through secondary stock offerings.
- Builds corporate business relationships.
- Markets and sells stocks.
- Creates liquidity in stocks through buying and selling of its holdings.
- Facilitates large stock transactions for its clients.
For each trade transaction in the markets their is both a buyer and a seller, sometimes the other side is a large institution. The buy side vs sell side of the stock market helps maintain balance and liquidity through every step in the publicly traded equity process from the IPO to a secondary offering, merger, bankruptcy, or being taken private.