Difference between buy side and sell side equity research

Two terms that are often used in financial markets are sell side and buy side. Sell side is used to describe an organization which provides securities exchange services to the investors of buy side firms. Normally operates with a big capital and considered as market makers, they basically play a middle party role to receive investments from institutions like insurance companies, pension and mutual funds. They earn commission from the margin of spread that is included in every deal.
On the other hand, a buy side can be defined as an organization which participates in market with aim to make profit from speculative activities. They usually operate with a smaller amount compared to sell side organizations. Some examples of these organizations are pension, hedge and mutual fund, trusts and small and medium enterprise trading companies.
Working model of the sell side can be described as professionals doing research and analysis for brokers in stock exchange. For example in Wall Street, Bear Stearns (NYSE: BSC), Lehman Brothers (NYSE: LEH), or Cowen Group (NASDAQ: COWN). Their prime responsibility is to recommend and assist customers who are trading or working with that brokerage firm.
On the contrast, many analyst work for the buy side also. But their scope of research is restricted to the organization they serve, unlike the sell side. They work for organizations like pension, mutual and hedge funds, or any other small company who runs its own fund for the benefit of its investors. They always try finding profitable opportunities to support their employers.
Both sides of equity research have their own potential markets. Many companies these days are outsourcing the research job to BPO firms for controlling their budgets and increasing efficiency. ISource Biz is one of those BPO firm, it provides equity research and analysis and many other financial services at feasible cost.

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  • Author: Ayaz Haider