So you want to be a Financial Market Trader or an Analyst or a Salesman. Do you want to work on the buy side or the sell side?
If your first thought was –“Huh? ” – keep reading.
Knowing the buy side / sell side distinction will help you in any interview with any financial organisation. It could just be that differentiating factor between you and the next guy.
The buy side is in the business of ‘buying stuff’. The sell side in the business of ‘selling stuff’. Easy enough to remember? Buy side buys, and sell side sells!
But who are the buy side / sell side?
The buy side consists of institutions such as Pension Fund Managers e.g. ICI Pension Fund, Asset Managers e.g. Fidelity Asset Management, Hedge Funds e.g. Brevan Howard, Wealth Management companies e.g. UBS Wealth Management and Stockbrokers e.g. Barclays Stockbrokers .
The buy side invest in large quantities of securities for money management purposes. Their goal is to make investments that align with investors’ expectations. ICI Pension Fund will want to make investments that meet their long term pension fund liabilities and therefore would invest in a conservative and long term manner. Barclays Stockbrokers will make investments on behalf of private clients that might be more short term or speculative such as overseas equity markets or buying gold for example, all dependent on the individual client’s wishes.
The sell side consists of all the Investment Banks which might be Global Tier 1 banks (there are about 25) with large graduate intake programs e.g. J.P. Morgan – Tier 2 banks (about 100) e.g. Commerzbank with a smaller intake program and Tier 3 banks (400+ in London ) with no formal programs but clearly hiring interests.
There is also a Broker community, not normally a graduate destination, who you would classify as on the sell side. Brokers act as neutral agency bodies to facilitate trading between banks.
So what do the buy side buy and sell side ?
The ‘stuff’ that is traded between the two sides could be Bonds (Fixed Income), Shares (Equities), Commodities (e.g. Gold, Silver) , Foreign Exchange (FX). Trades could be large for a significant Asset Management company e.g. GBP 50 Million of a UK Government Bond (also known as GILTS) or much smaller for a Stockbroker e.g. 200 shares of Marks & Spencer with a value GBP 10,000.
Sell side firms i.e. Investment Banks all provide copious amounts of Economic, Foreign Exchange, Fixed Income and Equity research which they make ‘freely’ available to the buy side in return for business. This is why there are so many Research and Analyst positions at the Banks although the buy side have their share too as they try and work out which way the markets are going.
Do the buy side never sell and vice versa?
Having said all of the above the buy side and sell side terms are slightly misleading because the buy side do in fact sell bonds and shares at times if they think the market is heading lower or if clients redeem or withdraw their funds from the firm. The sell side do buy securities if they think they are undervalued or to fulfil client orders when they don’t own the securities themselves.
The terms arise because the buy side have all the funds to invest: They manage other people’s money and they go to the banks who sell them securities and more accordingly.
So the buy side sell side distinction is a very good one to know: It can make you sound a bit more of an insider and certainly someone who has done some all-important research.
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