03. Trading Stocks

Buy Side and Sell Side

We’ve just seen that there are buyers and sellers who go through the stock exchange to buy a stock that they think will do well, or sell a stock that they wish to remove from their investments. We’ve also introduced the market maker, who serves as the counterparty of these buyers or sellers. Since every buyer needs a seller, and every seller needs a buyer, a market maker plays the role of seller to those who wish to buy, and plays the role of buyer for those who wish to sell. By convention, we refer to these market makers as the “sell side” of the finance industry. The sell side includes investment banks such as Goldman Sachs and Morgan Stanley. The buy side refers to individual investors, and investment funds such as mutual funds and hedge funds. This Nanodegree is focused on the perspective of the “buy side”. However, it’s good to learn about the “sell side”, because these are the people that the “buy side” usually does business when they enter the market to buy or sell stocks. We’ll see an important role that the “sell side” market makers play in the next video.