Quant Ladder

Market-Making Interview Questions: The Games Firms Play and How to Win Them

3 min read

At some point in nearly every trading interview — Optiver, SIG, IMC, Flow, and increasingly the multi-strats — you'll be asked to make a market. The interviewer names a quantity, you quote a bid and an ask, and then they trade against you while the game evolves. Candidates who've never played lose in predictable ways. Here's the game, and the handful of principles that decide it.

The basic game

"Make me a market on the number of windows in this building."

You're being asked for two numbers: a price you'd buy at (bid) and a price you'd sell at (ask). Suppose you think the answer is around 600. You might quote 550 at 650.

What the interviewer is checking, in order:

  1. Do you know what a market is? You must be willing to trade in both directions at your quotes. Quoting 550 at 650 means: if they say "sold," you just bought at 550; if they say "take," you sold at 650.
  2. Is your spread proportional to your uncertainty? A tight market on something you can't estimate is the classic blunder. If your 90% confidence interval on the windows is 300–1200, a 550/650 market is far too tight.
  3. Do you update when traded against? This is the heart of the game.

Adverse selection: the lesson the game exists to teach

When the interviewer trades with you, ask yourself why. In the game, as in real markets, the person who chooses to trade against your quote often knows something. If they lift your offer at 650, the correct inference is that 650 is probably cheap — so you move your market up, and usually widen it until you understand what's happening.

The canonical failure mode: candidate quotes 550/650, interviewer buys, candidate keeps quoting 650 offers, interviewer buys again and again. The candidate has now sold five times to a buyer with better information and is short a large position at prices below fair value. In the debrief this has a name: adverse selection. The interview version is gentle; the real version is how market makers lose money.

The three reflexes to build:

  • Trade moves your price. After a lift, shift your midpoint up; after being hit on the bid, shift down. A common baseline: move the mid by half a spread per trade against you.
  • Repeated one-sided flow widens your market. One trade is information; three trades in the same direction is a fire alarm.
  • Inventory has a price. As your position grows, skew your quotes to attract the flow that flattens you — if you're short, raise both bid and ask so you're a more eager buyer and a more reluctant seller.

Variants you should expect

The card game version. "I'll draw a card; make me a market on its value. Now I look at the card and I'll trade with you." Once the interviewer has seen the card, every trade they make is informed — the only defense is spread and rapid updating. This variant tests whether you noticed that the information structure changed.

The news-shock version. Mid-game the interviewer announces something ("actually, the building has two more floors than you thought"). They're checking that you re-mark your fair value immediately and don't anchor on your old mid.

The size version. "I want to trade 10 units, not 1." Bigger size deserves a wider price — you're taking more risk per quote, and large demand is itself information.

A quoting checklist

Before you say numbers, have these in mind:

  1. Fair value estimate — say it out loud along with your reasoning.
  2. Uncertainty — set your spread around your confidence interval, not around what "sounds like a normal spread."
  3. Update rule — decide before the first trade how much each fill moves your mid.
  4. Inventory limit — decide when you'll stop absorbing one-sided flow and skew aggressively.

Interviewers care much more about the process — a stated fair, a justified spread, visible updating — than about your windows estimate being right.

Practicing the real thing

Reading about adverse selection and experiencing it are different animals. The Quant Ladder simulator runs this exact game against simulated flow with a controlled fraction of informed traders, and scores each round on spread capture, inventory discipline, and your reaction to toxic flow — the same rubric an interviewer is using in their head.