Buy Side vs Sell Side
The buy side invests money; the sell side provides trading, research and capital raising services. Learn the main firms, roles, incentives and career differences.
The financial industry is often divided into two sides. The buy side manages money and makes investment decisions: asset managers, hedge funds, pension funds and insurers. The sell side provides services to them: banks and brokers that execute trades, make markets, publish research and help companies raise capital. The names come from the idea that the buy side buys services and securities, while the sell side sells them. Understanding the split explains who does what, how each side gets paid and why their incentives differ.
Who is on each side#
| Buy side | Sell side |
|---|---|
| Mutual fund and ETF managers | Investment banks |
| Hedge funds | Broker dealers |
| Pension funds | Market makers and dealers |
| Insurance companies | Equity and credit research providers |
| Endowments and foundations | Exchanges and trading venues (often grouped separately) |
| Sovereign wealth funds | Prime brokers. See Prime Brokerage |
| Family offices |
What each side does#
| Function | Buy side | Sell side |
|---|---|---|
| Goal | Generate investment returns for clients or owners | Earn fees, commissions and spreads by serving clients |
| Research | Internal, used to make decisions | Published to clients, often including ratings and price targets |
| Trading | Executes the firm's own investment decisions | Executes client orders, makes markets, provides liquidity |
| Capital | Invests client or own capital | Uses balance sheet for market making and underwriting |
| Paid by | Management and performance fees | Commissions, spreads, advisory and underwriting fees |
How they interact#
Sell side research#
Sell side analysts publish research on companies, with ratings such as buy, hold or sell and price targets. Since the EU's MiFID II rules took effect in 2018, research in Europe must be paid for separately from trading commissions, a change known as unbundling, which reduced research coverage of smaller companies. Analysts' incentives have been debated, since their firms may also seek banking business from the companies they cover. See Guidance and Earnings Revisions.
Incentives and conflicts#
| Side | Potential conflict |
|---|---|
| Sell side | Advising both investors and companies; trading against clients as principal |
| Buy side | Fees tied to assets can encourage gathering money over performance |
Rules on research independence, best execution and fiduciary duty aim to manage these conflicts. See Trading Regulators: SEC, CFTC, FINRA and NFA.
Careers on each side#
| Buy side | Sell side | |
|---|---|---|
| Typical roles | Analyst, portfolio manager, buy side trader, quant researcher | Sales, trading, research analyst, structurer, investment banker |
| Focus | Long term decisions, performance | Client service, flow, deal execution |
| Path | Often hired from the sell side after a few years | Common entry point for graduates |
See Trading Careers Explained and Portfolio Manager.
Where newer players fit#
Electronic market makers and high frequency firms trade their own capital but provide liquidity like the sell side. Crypto exchanges combine exchange, broker and sometimes market maker roles. Retail investors act on the buy side for their own accounts. See Market Makers and Liquidity Providers and Centralized vs Decentralized Exchanges.
Frequently asked questions#
What is the buy side?#
Firms that invest money, such as asset managers, hedge funds, pension funds and insurers.
What is the sell side?#
Banks and brokers that provide services such as trading, market making, research and capital raising to investors and companies.
Is a hedge fund buy side or sell side?#
Buy side, because it invests money and makes investment decisions.
Next, learn how trading desks are organised in Trading Desks.
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