Buy-Side vs. Sell-Side

Ever wonder what the difference is between these "buy-side" and "sell-side" analysts you occasionally hear about? Wonder no more.

First, understand that much of the stock trading each day occurs between large institutions, such as pension funds and mutual funds. To determine which stocks to buy and which to sell, these institutions rely on the research and opinions of analysts.

Analysts who work for brokerages, dispensing recommendations to clients, are sell-side analysts. Buy-side analysts don't sell their research to outsiders. They work for mutual fund companies or other financial institutions and give recommendations internally, almost exclusively to portfolio managers and other money managers.

It might make more sense if you imagine a retail situation, where you're shopping for a new broom at Sweep City (ticker: BRUUM). The guy who works there, describing and recommending various brooms to you, would be the sell-side clerk. He's out to drum up business and make sales. Meanwhile, a friend of yours who's giving you advice on why you should or shouldn't buy brooms at these prices would be on the buy side, aligned with you, the buyer.

You can learn more about how the financial world works in our Fool's School. To see what Foolish anlaysts are saying, check out our newsletters. To learn to more about brokerages and possibly find a better brokerage for yourself, check out our Broker Center.

For more personal finance and investing basics, visit our Personal Finance area, our Investing Basics area, and our Fool's School. You can also learn a lot via our acclaimed How-to Guides and online seminars and our book,The Motley Fool Money Guide: Answers to Your Questions About Saving, Spending and Investing.

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