What do the terms "market making" & "buy side" mean?

Answer 1

Market making: A market maker is a party that has a responsibility to quote a price on a particular security so that there will always be a market in that security. Examples are specialists on the New York Stock Exchange and primary dealers in the US Treasury market.

Buy-side: Refers to institutions which hold portfolios of securities for investment. "Sell-side" basically refers to brokers. In general the sell-side provides services to the buy-side; the buy-side is the client of the sell-side.

Check out www.investopedia.com for more formal definitions.

Answer 2

Well, in the most general sense, market making is a mechanism for bringing buyers and sellers of financial instruments or commodities together so that trades can be made. Different exchanges handle the function in different ways.

Buy-side means to be on the buying side of a transaction. Where you hear the term most is when people speak of "buy-side analysts." These are the folks analyzing and maybe recommending securities for purchase by institutions such as mutual funds, hedge funds, pension funds, endowment funds, etc. They generally work in anonymity.

On the other hand, "sell-side analysts" are the folks that work for the brokerages and make recommendations for the brokerage's clients. These are the analysts that you will most likely hear on CNBC or see quoted in the Wall Street Journal, Barron's, etc.