Whether you're a retail trader using an ICT trading strategy or an institutional investor managing a multi-million dollar portfolio, understanding buy and sell side liquidity is essential.
These two forces power the financial markets—one bringing capital, the other bringing execution. Their interaction shapes every trade, drives price discovery, and determines whether your strategy will succeed or fail.
In this guide, we'll break down what they are, how they function, and why mastering this relationship is necessary for any savvy market participant.
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In finance, the "buy side" is institutions and individuals that invest money to gain a return on it. The players in question are generally responsible for buying financial instruments, be it stocks, bonds, derivatives, or other instruments such as cryptocurrency. Their aim is straightforward: maximise returns while also keeping an eye on risk. But in what ways they act and engage with markets is more complicated.
Buy-side entities represent a wide and varied group of investors, each playing a distinct but crucial role in today’s financial markets.
At the heart of this ecosystem are asset management firms—companies that manage investments for diverse clients, from individual retirees and charitable foundations to large corporations and pension funds.
These firms carefully construct portfolios using active strategies—where managers pick specific assets based on research—and passive strategies, such as index tracking, to grow wealth while managing risk.
Another significant force on the buy side is hedge funds, which work slightly differently. With their aggressive, and often sophisticated, strategies, hedge funds employ instruments such as leverage, derivatives, and short selling to attempt to beat the market, to create what industry insiders refer to as "alpha."
They prefer to be moving quickly, taking advantage of opportunity, and are more willing to accept risk, shifting frequently based on market cues and international trends.
And there are pension schemes, which bear the onus of looking after billions of workers' retirement funds. They have long-term investing horizons, perhaps taking decades, meaning that they favor stability and diversity of holdings.
Their capital is invested in public equities, debt, real estate, infrastructure, and, more and more, alternatives such as private equity or allocations to hedge funds.
Insurance companies also play a major role in the buying side. They take the premiums policyholders pay and invest that money to ensure they can meet future claims.
Because of this obligation, they typically lean toward safer investments, such as high-quality government and corporate bonds. But many also venture into equities and less traditional assets to enhance returns—especially in low-interest-rate environments.
On a larger, global scale, sovereign wealth funds (SWFs) stand out. These state-owned investment funds manage excess national reserves, often built from oil revenues or trade surpluses.
With deep pockets and long time horizons, SWFs invest strategically globally in everything from public companies to infrastructure projects, venture capital, and even emerging technologies.
Even though they’re not institutions, retail investors—individuals investing their money through platforms like Robinhood, Fidelity, or eToro—also belong to the buy side. While their trade sizes are smaller, their collective presence has grown massively in recent years.
Thanks to user-friendly apps and commission-free trading, more people than ever are participating in markets, often influencing price movements and sentiment along the way.
Their common role as liquidity consumers ties all of these groups together. In other words, they enter the market to buy assets rather than supply them. They rely on sell-side firms—like brokers, banks, or market makers—to provide the other side of their trades.
This constant demand for assets drives much of the market’s activity, influencing prices, fueling growth, and keeping capital flowing across borders and industries.
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In ICT trading, identifying buy or sell side liquidity areas can help predict institutional order flow and stop-hunt zones before they happen.
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At its core, the buy side exists for one fundamental reason: to grow wealth through intelligent investing. Unlike the sell side—whose role is primarily to execute trades, offer research, and earn fees from facilitating transactions—the buy side deploys capital to deliver long-term financial returns. Every decision, every trade, and every strategy is guided by one central mission: maximise portfolio performance while managing risk.
Buy-side professionals don’t just throw money into the market and hope for the best. They conduct deep research, study macroeconomic trends, evaluate sector-specific dynamics, and scrutinise individual securities or asset classes.
They look for opportunities where the market might have mispriced risk or misunderstood value—spots where they believe they can enter a position that will pay off over time. In many cases, especially in institutional settings, investments are made based on a carefully crafted investment thesis aligned with the firm’s goals and the client’s expectations.
So, what exactly are these firms trying to achieve with all this effort? Their objectives can vary, but they typically fall into a few key categories:
One of the most common goals is to increase the portfolio's overall value over time. This means buying assets—like stocks, bonds, real estate, or alternative investments—that are expected to rise in price.
Capital appreciation is especially important for funds with long-term horizons, such as pension funds or endowments, where the goal is to steadily grow the principal over many years to meet future obligations.
For other investors, such as retirees or institutions that face continuing financial commitments, creating a stable source of income is as critical as growth to them.
In these instances, buy-side managers seek holdings that generate regular distributions—dividends from stocks, coupon interest from bonds, or returns from real estate and other income schemes. They want to build an equilibrium portfolio that grows and distributes steadily.
Downside risk is another key area of attention. Regardless of whether the manager is talented or whether market conditions are optimistic, uncertainty and volatility are realities in finance. Diversification, hedging, and asset allocation measures reduce exposure to particular risks, which is done by buy-side companies.
For instance, owning a combination of assets that don’t move together can reduce losses when markets decline. Derivatives and other financial instruments also serve as hedges for most companies against inflation, interest rate fluctuations, exchange rate fluctuations, or political upheavals.
In the world of institutions, success is not solely defined by absolute returns—it’s also measured on an apples-to-apples, or comparative, basis. Numerous buy-side managers are attempting to beat a particular index, like the S&P 500, or MSCI World Index, or an individually designed composite.
To beat the index is to add value above and beyond gaining any market ride, an important measure of attracting, retaining, and pricing in clients. Active managers, especially, continually strive to produce “alpha,” or excess return, that merits paying them to manage an investor’s money.
To truly grasp how financial markets work, it’s essential to understand the concept of sell-side liquidity. While the buy side represents investors looking to purchase assets, the sell side is about making those purchases possible—by providing the liquidity, infrastructure, and services needed to match buyers with sellers efficiently.
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So, what exactly is sell-side liquidity? Simply put, it refers to the ability of financial institutions on the sell side—like banks, brokers, and market makers—to supply tradable assets to the market and absorb buy-side demand.
These entities don’t typically hold positions for long-term gain. Instead, they facilitate trades, quote prices, and maintain active markets, ensuring buyers can always find a seller (and vice versa).
Sell-side liquidity is maintained by various institutions, each playing a specialised role in ensuring markets run smoothly. At the forefront are investment banks, which often act as intermediaries in large and complex financial transactions.
Whether helping a corporation issue new securities or facilitating the block sale of millions of shares, these firms bring structure, strategy, and execution to the table. Their expertise helps match massive buy-side interest with available market supply, often in ways that minimise market disruption.
Broker-dealers are another vital part of the sell-side machinery. These firms serve as the direct link between investors and the markets, executing buy and sell orders on behalf of clients.
Sometimes, they even take the other side of a trade, especially if it means getting the deal done quickly and at a fair price. Their ability to step in and provide immediate execution helps support market efficiency and speed.
Then there are market makers, whose job is constantly offering to buy and sell securities by quoting bids and asking prices. They stand ready to transact at any moment and, in doing so, create a steady stream of liquidity for other market participants.
Their profit typically comes from the slight difference between the prices they buy and sell—the bid-ask spread—but their real value lies in keeping markets active and balanced.
In more technologically advanced and fast-paced markets—especially in crypto and electronic trading—automated liquidity providers and algorithmic trading firms have taken on much of this role. These entities use high-speed systems to scan multiple venues, respond instantly to buy or sell orders, and offer competitive price quotes.
Together, these sell-side participants form the infrastructure that makes modern trading possible. When a buy-side firm wants to move a large order—say, purchasing 100,000 shares of stock—it’s the sell side that makes it happen.
Whether directly fulfilling the trade, sourcing sellers behind the scenes, or using advanced algorithms to break up and route the order efficiently, the sell side ensures that liquidity is there when needed most.
The relationship between buy-side and sell-side liquidity is the engine that keeps financial markets alive. It’s a constant push and pull—demand meeting supply, intentions meeting execution.
While the buy side brings capital to the table to invest, the sell side brings the tools, access, and readiness to trade that make those investments possible. Their interaction is not just transactional—it’s deeply symbiotic, built on coordination, trust, and precision.
Let’s break it down. Imagine a large institutional investor—a pension fund—who wants to buy significant shares in a specific company. This fund sits on the buy side, with capital to deploy and a long-term strategy in mind. But just having money isn’t enough.
They need a counterparty—a seller- to turn that cash into assets. And more importantly, they need someone who can find that seller, negotiate the price, and execute the trade efficiently. That’s where the sell side comes in.
Sell-side firms—like investment banks, brokers, and market makers—exist to meet this need. They maintain networks, access multiple markets, and are often willing to temporarily take the other side of a trade to ensure it gets filled.
The sell-side jumps into action when the pension fund submits its order. It might break the order into smaller pieces, route them across different trading venues, or even fill part of the order directly from their own inventory.
This isn’t just about convenience—it’s about market impact. Large buy-side orders can move prices, sometimes drastically. A massive buy order placed all at once could cause prices to spike before the full order is even filled.
The sell-side helps manage this by smoothing out the transaction, ensuring the buyer gets a fair average price, and the market stays stable. On the other side, sell-side institutions rely on buy-side demand to keep their operations profitable and efficient.
Market makers, for instance, post bids and ask prices constantly, but they depend on consistent flows of buy and sell orders from the buy side to make their spreads worthwhile. Without active participation from investors and funds, liquidity would dry up, spreads would widen, and trading costs would rise.
This interaction becomes even more dynamic in highly electronic environments, like modern stock exchanges or crypto platforms. Algorithms on the sell side analyse buy-side order flow in real-time, adjusting quotes and positioning based on demand.
Meanwhile, buy-side trading desks use their tools to analyse sell-side behaviour, choosing when, where, and how to trade based on depth, speed, and execution quality.
What emerges from this back-and-forth is a constantly evolving liquidity ecosystem. The buy side creates pressure—either buying or selling—and the sell side responds, absorbs, and redistributes that pressure across the market. It’s not a static relationship; it’s a dance.
During periods of calm, it flows effortlessly. During market stress, like a financial crisis or breaking news event, this interaction is tested, and its strength determines whether markets hold or spiral.
In the financial world, liquidity is more than a buzzword—the invisible force makes markets work. The buy side brings the capital, searching for opportunities to grow wealth, generate income, or hedge against risk. The sell-side provides the structure, ensuring every trade finds a counterparty and is executed fairly.
This understanding is not optional for traders using ICT strategies—it's foundational. Knowing where liquidity sits, who controls it, and how it flows gives you the insight to navigate markets with precision, timing, and confidence. Whether you're managing a hedge fund or trading from home, one thing is clear: follow the liquidity, and the market will reveal its story.
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Buy-side liquidity comes from investors looking to purchase assets, while sell-side liquidity is provided by institutions facilitating those purchases.
Buy-side players include asset managers, hedge funds, pension funds, insurance companies, sovereign wealth funds, and retail investors.
The sell-side ensures smooth execution by providing access to markets, quoting prices, and maintaining liquidity through brokers, banks, and market makers.
Identifying where liquidity pools form helps ICT traders anticipate price movements, stop-hunts, and institutional order flow.
They work symbiotically—buyers bring capital, and sellers provide access and execution, enabling efficient price discovery and trade fulfillment.
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