Loading the player...

What does 'Buy Side' mean

Buy side is the side of Wall Street made up of investing institutions such as mutual funds, pension funds and insurance firms that tend to buy large portions of securities for money-management purposes. The buy side is the opposite of the sell side, which provides the public with recommendations for upgrades, downgrades, target prices and other opinions on the public market. Together, the buy side and sell side make up both sides of Wall Street.

BREAKING DOWN 'Buy Side'

Specifically, buy-side firms are companies that purchase securities and other assets for their own needs or the needs of their clients. In addition to the institutions listed above, other buy-side firms include private equity funds, hedge funds, trusts and other proprietary traders.

For example, a buy-side analyst typically works in a non-brokerage firm, such as a mutual fund or pension fund, and provides research and recommendations exclusively for the benefit of the company's own money managers as opposed to individual investors. Unlike sell-side recommendations, which are meant for the public, buy-side recommendations are not available to anyone outside the firm. In fact, if the buy-side analyst discovers a formula, vision or approach that works, it is kept secret.

The Secrecy Behind Buy-Side Investing

The whole point of buy-side investing is to create value for the firm or the firm's clients by identifying and purchasing underpriced assets. Since large market movements can affect the price of a security, buy-side investing only works if the strategy is kept from the public.

If, for example, a buy-side analyst notices, based on a proprietary financial model he is using, the price of a technology stock is lower than that of its peer group, yet it is a higher-performing company, the analyst is led to believe the technology stock's price will increase in the near term. Using the information he has discovered, he makes a buy recommendation to his key list of high-powered clients. If, however, the analyst makes the information public, perhaps by emailing an influential financial reporter, he loses the opportunity to get in at a low price. Instead, the share price skyrockets as the public clamors to purchase shares while the equity is still low.

This is why, at firms with both buy-side and sell-side analysts, a "Chinese Wall" is constructed to separate the two departments. However, there are some instances when an investment bank with a proprietary trading and public sell-side desk might lower said wall. A buy-side analyst who is exiting a position might ask a sell-side analyst to make a buy recommendation for the same position, effectively increasing the share price prior to it being sold.

Duties of a Buy-Side Analyst

Analysts employed on the buy side engage in financial research of companies and investment strategy development, which typically involves deep research and financial modeling. They may also talk directly to companies in which they have investment interest. Buy-side analysts tailor their research specifically to answer the question of whether a given investment is a good fit that will provide optimal returns for the investment firm, unlike sell-side analysts, whose research may be targeted at a wider audience. 

RELATED TERMS
  1. Research Analyst

    A research analyst is a person who prepares investigative reports ...
  2. Investment Analyst

    An investment analyst is a financial professional with expertise ...
  3. Sell Side

    The part of the financial industry involved with the creation, ...
  4. Stock Trader

    A stock trader is an investor in the financial markets.
  5. Analyst Sponsorship

    A positive endorsement that an analyst makes regarding a company's ...
  6. Proprietary Trading

    When a firm trades for direct gain instead of commission dollars. ...
Related Articles
  1. Personal Finance

    Careers In Buy-Side And Sell-Side Research

    The primary professions on Wall Street are made up of sell side and buy side analysts. This article is an overview of the two primary avenues for individuals interested in both fields.
  2. Insights

    Fund Flows Suggest the Buy-Side Is Fading the Trump Rally

    Buy-side investors bought the most EUR/USD futures contract in a week since June 2015, BofA says.
  3. Financial Advisor

    Becoming a financial analyst

    Understand the types of career paths you can take as a financial analyst and learn the education and skills you need to launch a career in this field.
  4. Personal Finance

    Career advice: Financial analyst versus equity analyst

    Understand the subtle distinctions between financial analysts and equity analysts, and learn the pros and cons of each career.
  5. Investing

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  6. Financial Advisor

    7 Designations For The Sell Side

    While all of these designations demand a substantial commitment in time, money and effort, the end result is worth it.
  7. Personal Finance

    Career advice: Financial analyst or financial adviser?

    Review the differences between a career as a financial adviser and a career as a financial analyst, including how to decide which is best for you.
  8. Personal Finance

    Career Advice: Financial Analyst Vs. Financial Consultant

    Read an in-depth comparison between working as a financial analyst or a financial consultant, including how to determine which career to choose.
  9. Personal Finance

    Investment analyst: Career path and qualifications

    Learn how to prepare for a career as an investment analyst and how many professionals in the field progress through their careers.
  10. Investing

    3 Suggestions Before Reading Analyst Stock Recommendation

    Discover the true motivations and priorities of sell-side analysts and why individual investors should ignore consensus estimates for earnings and revenues.
RELATED FAQS
  1. What are major differences between investment banking and private equity?

    Private equity and investment banking both raise capital for investing purposes, but they do so in very different ways. Read Answer >>
  2. What's a Typical Day for Someone in M&A?

    Financial professionals in M&A have a very specialized role. Check out their typical duties. Read Answer >>
Hot Definitions
  1. Receivables Turnover Ratio

    Receivables turnover ratio is an accounting measure used to quantify a firm's effectiveness in extending credit and in collecting ...
  2. Treasury Yield

    Treasury yield is the return on investment, expressed as a percentage, on the U.S. government's debt obligations.
  3. Return on Assets - ROA

    Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
  4. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  5. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  6. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
Trading Center