Definition
Equity Research involves analyzing company’s financials, industry trends, and market conditions to make investment recommendations typically in the form of buy, sell, or hold ratings. On the other hand, Sales & Trading involves the actual buying and selling of securities such as stocks or bonds, where traders execute trades and salespeople maintain relationships with clients and persuade them to buy or sell based on the research team’s recommendations. The two roles coexist in financial institutions, but work distinctly, with research focusing on data analysis and projections, and sales & trading focusing on market transactions and client interactions.
Key Takeaways
- Equity Research involves in-depth analysis of stocks and sectors to provide investment advice to businesses and clients. Sales & Trading, on the other hand, is about executing orders for purchase and sale of these securities in the market.
- The goal of Equity Research is to predict the future financial performance of a company in order to provide a price target and buy, sell or hold recommendation, while the goal of Sales & Trading is to help clients maximize profits on their transactions or to make profits for their own firm’s account.
- Equity Research professionals often work with long term perspective and require deep analytical skills along with industry knowledge. Sales & Trading professionals need to be quick decision makers, potentially under high pressure, due to the fast-paced and real-time nature of their job.
Importance
Equity Research and Sales & Trading are both integral aspects of finance but serve different purposes. Equity Research involves analyzing financial data, market trends, and macroeconomic indicators to provide recommendations on which stocks or bonds to buy or sell.
This research is highly beneficial to investors and financial advisors when making investment decisions. On the other hand, Sales & Trading refers to the actual execution of buying and selling securities.
This involves direct interaction with market participants, negotiating prices, and immediate decision-making. Understanding the differences between them is important as they represent two key functions in the financial world; one involves critical evaluation and strategic planning, while the other relates to the real-time execution of those plans.
Moreover, both influence and shape the dynamics of the financial markets.
Explanation
Equity research and sales & trading both serve vital roles within the financial system, each with its unique purpose and function. Equity research is primarily concerned with the detailed analysis and valuation of public companies. The purpose of this division is to examine a company’s financials and market position, evaluate its future prospects, and generate detailed analysis reports.
These reports often include a “buy,” “sell,” or “hold” recommendation. Portfolio managers, hedge funds, and individual investors often use this research to make informed investment decisions. On the other hand, sales & trading divisions serve as the bridge between buyers and sellers in the financial markets.
They are tasked with selling securities to institutional and retail clients and managing the risk associated with such sales. They derive their revenue from the bid-ask spread, which is the difference between the price a buyer is willing to pay and the price a seller is willing to accept. Apart from facilitating transactions between traders, sales & trading also play a pivotal role in providing market liquidity, thus ensuring smooth and efficient operation of financial markets.
Examples of Equity Research vs Sales & Trading
In the context of a financial institution like Goldman Sachs or J.P. Morgan, equity research analysts study public companies’ financial statements, market trends, and other informative details to predict a company’s future stock performance. They provide recommendations to buy, hold, or sell a particular stock based on this exhaustive research. However, the sales and trading team at the same financial institution uses these research reports to inform their clients and make trading decisions on their behalf. The sales and trading division is responsible for finding buyers and sellers for stocks, often making revenue for their firm through commissions.
For instance, in a tech company like Apple, an equity research analyst would compare the company’s performance to its competitors, analyze their financial documents, and predict the future growth of the company using various financial modeling techniques such as discounted cash flow (DCF). On the other hand, a sales and trading professional at a bank or brokerage firm would use that analysis to make investment decisions, either by advising clients to buy/sell Apple’s stock or trading the company’s stock on the markets themselves.
An equity research analyst at a mutual fund, for example, Vanguard or Fidelity, would study market trends in different industries, evaluate individual companies within those industries, and produce research data. The sales and trading team, on the other hand, would be in charge of executing trades on behalf of the mutual fund’s clients, using the research data to inform these trades and help their clients grow their portfolios.
FAQs: Equity Research vs Sales & Trading
What is equity research?
Equity research involves analyzing stocks to provide investment recommendations. It involves a deep understanding of specific businesses, the economy, market trends, and financial modeling. Equity research analysts work to forecast a company’s future financials, which they compare with the current price to determine whether the stock is a good investment.
What is sales and trading?
Sales and trading is a function performed by the investment bank’s trading division. Traders are responsible for buying and selling financial instruments on behalf of the bank’s clients and for the bank itself. Salespeople have a deep understanding of the market and specific products, and they use this knowledge to sell these financial instruments to clients.
What are the main differences between equity research and sales and trading?
The main difference between equity research and sales & trading lies in their particular functions within an investment bank. Equity research analysts analyze companies and stocks to make investment recommendations. They dig deep into the functionalities and performance of a company to provide insights about its value. On the other hand, sales & trading involves the actual buying and selling of securities, reacting to daily market changes and making instant decisions about when and what to trade.
What skills are needed for equity research versus sales and trading?
Equity research requires strong financial modeling, analytical, and valuation skills. A background in finance, business, or a related field and a strong understanding of the stock market are also beneficial. Sales and trading professionals, on the other hand, need to be quick decision makers with in-depth knowledge of the markets. They should be able to handle high-stress situations and communicate effectively with clients.
Which field offers a better work-life balance?
The work-life balance can vary greatly depending on the firm, role, and individual’s personal preferences. Generally, equity research tends to offer a better work-life balance than sales and trading. Sales and trading often requires long and irregular hours due to the need to follow the market’s opening hours. Meanwhile, equity research can also involve long hours, especially during the financial reporting seasons, but typically involves a more predictable schedule.
Related Entrepreneurship Terms
- Stock Valuation: It is a primary function in equity research where analysts determine the intrinsic value of a company’s stock. Sales and trading teams use these valuations to make informed decisions.
- Buy-Side vs Sell-Side: Equity research is typically on the sell-side, creating reports for clients to aid in their decision-making process. Sales & Trading, on the other hand, is executed on both the buy-side and sell-side, often mediating transactions between clients and the marketplace.
- Financial Analysis: Both roles require a firm understanding of financial analysis. Equity researchers analyse financials to evaluate a company’s worth, while those in sales & trading use it to identify investment opportunities.
- Risk Assessment: Both equity research and sales & trading have to evaluate the level of risk associated with investment options. However, the risk in sales & trading is usually more immediate due to the fast-paced nature of trading.
- Market Trends: Both roles need to keep abreast of market trends. Equity researchers may use this information to adjust their estimations and recommendations, while sales and trading would use it to make informed sales and purchases in the market.
Sources for More Information
- Investopedia: A prominent source for financial and investing terms, tutorials, and articles.
- Wall Street Mojo: Provides detailed explanations about various financial concepts, including equity research and sales and trading.
- Corporate Finance Institute (CFI): Features a wide array of courses and financial content focusing on practical financial skills.
- Seeking Alpha: An online marketplace for equity research and discussions about the stock market.
