The stock market is full of different types of traders who all have different ways of approaching the market. It’s natural to think that buy-side traders have an advantage over sell-side traders since they’re essentially on opposite sides of the same transaction.
One debate that has been around for a while is whether it is better to be a buy-side or sell-side trader. Each type of trader has its own advantages and disadvantages, so it really depends on what your goals are as a trader.
Let’s check out: buy-side traders vs. sell-side traders. Who’s better? Who makes more money?
The buy side is the group of traders who buy assets (e.g. stocks, bonds, commodities) from the market and work for banks, investment firms, and sovereign wealth funds. Whereas the sells side is the group of traders who sell assets (e.g. stocks, bonds, commodities) to the market and work as individual traders, hedge funds, and private equity firms.
To break into the buy-side trading world, it is essential to have a strong understanding of stocks and bonds as well as a solid educational background in economics and finance. As a buy-side trader, you will be responsible for making investment decisions for the firm, which can range from asset allocation to individual stock purchase or sale decisions.
Who are Buy-Side Traders
Buy-side traders work for a financial institution that is buying securities, such as a mutual fund or pension fund. They may also work for a hedge fund. The main job of a buy-side trader is to find undervalued securities and then convince the investment committee to buy them.
There are several pros to being a buy-side trader. One is that you get to be more selective with your trades since you’re not under pressure to sell securities every day like sell-side traders are.
Who is Sell-Side Traders
Sell-side traders are the people who work for banks and other financial institutions that buy and sell securities. They make a living by trading stocks, bonds, commodities, and other assets.
Some people view them as the “good guys” of the financial world because they help to provide liquidity in markets and can be seen as stabilizing forces. Others see them as heartless capitalists who are only interested in making money for themselves and their employers.
10 Key Differences Between Buy-Side Traders & Sell-Side Traders
There are many key differences between buy-side and sell-side traders. Some of the most notable differences include:
Perhaps the most important difference is that buy-side traders are typically looking to buy securities, while sell-side traders are typically looking to sell them. This difference is important because it means that the goals of the two groups of traders are often in conflict.
For example, if a buy-side trader is looking to buy a security, the sell-side trader may be trying to sell it for more than the buy-side trader is willing to pay. This conflict can lead to tension and arguments between the two groups of traders.
2- Difference in Information Access
Another key difference between buy-side and sell-side traders is the type of information that each group has access to. Buy-side traders typically have access to more information than sell-side traders.
This is because buy-side traders work for large institutional investors, who have access to more information and resources. On the other hand, sell-side traders typically work for investment banks, which have less access to information. This difference in information can give
3-Serve Different Institutions
Perhaps the most important difference is that buy-side traders are typically working for institutional investors, while sell-side traders work for banks and other financial institutions. This means that buy-side traders are more focused on long-term investment strategies, while sell-side traders are more focused on short-term profits.
4-Buy Side Traders are more Flexible
Another key difference is that buy-side traders have more flexibility in terms of the types of trades they can make. For example, a buy-side trader can choose to buy or sell a security at any time, without worrying about whether or not they will be able to find a buyer or seller for the security.
Sell-side traders, on the other hand, are typically bound by the rules of their employer, which means that they may only be able to trade certain types of securities.
5- Profit Targets
Buy-side traders tend to be more focused on long-term goals, while sell-side traders are more focused on short-term goals. Buy-side traders set profit targets to fulfill within a day or overnight. Whereas sell-side traders set weekly targets.
7- Difference in Order Type
Buy-side traders typically place orders for large blocks of securities, while sell-side traders place orders for smaller amounts of securities.
8- Trading Type Difference
Buy-side traders typically trade for their account, while sell-side traders trade for the account of their firm. However, some buy traders also trade for cooperates and institutes.
9- Difference in Terms of Compensation
Buy-side traders are typically compensated based on the performance of their portfolio, while sell-side traders are typically compensated based on the commissions they generate.
10-Difference in Pay & Risk Level
Buy-side makes money when they can buy at a low price and sell at a higher price without incurring much risk. Sell-side traders work as employees of investment banks. Their job is to trade on behalf of their clients, meaning they may either be taking or giving orders from customers who have bought or sold stocks.
There is more risk involved. The big difference between these two types of traders is that while both make money when prices go up, only buy-side traders make money when prices go down too!
Who is Better: Buy Side Trader or Sell Side Trader
The best type of trading career for you depends on your personal goals and strengths; if you’re interested in managing investments for other people, then becoming a sell-side trader is the better option for you. If not, then you may want to become a buy-side trader and invest for yourself instead!
Frequently Asked Questions
Is JP Morgan Buy side or Sell Side?
JP Morgan is an investment bank that is on the sell side. Their primary responsibility is to make investments on behalf of the company’s funds, rather than working with individual investors who might want to purchase stock through a broker.
Is Goldman Sachs a buy-side trader?
No, Goldman Sachs is a sell-side trader because it is one of the largest investment banks. Its main responsibility is to provide liquidity for better order execution of investors.
Overall, buy-side and sell-side traders are totally different entities. Buy-side traders are usually portfolio managers, mutual fund managers, and pension fund managers who make their trading decisions based on their own research, with the intent to buy and hold securities for an extended period of time.
They have the ability to hold onto positions for as long as they need to in order to reach their desired goals, or until there is a change in the market that requires them to sell holdings at a loss.
On the other hand, Sell-side traders work for brokerages; this type of investor trades securities to clients and other firms through commission fees or spreads on stock exchanges.
Unlike the buy-side trader who tries to be patient in his investments, sell-side traders try to create more immediate profit by anticipating changes in prices and trends.