Buybacks can be used by companies to purchase shares from their shareholders, and they can also be performed in derivatives and managed funds.

A buyback can be used to either boost the price of shares by reducing supply or to protect the company from shareholders who might be looking for ways to achieve controlling stakes or hostile takeovers. Through buybacks, companies basically invest in themselves, sending a message that they either feel their shares are undervalued or that it is the best investment option they have at that point. Irrespective of the reasons, buybacks increase the share of stock owned by the company, while also boosting earnings per share, and thus market value, for the shares that remain on the market.

Buybacks can be carried out by making tender offers to investors, and shareholders receive a premium for letting go of their participation, or by normal transactions on the open market over longer periods of time.