A market-making interview is not only a fair-value calculation. It tests how you price uncertainty, choose a spread, react to information and manage the risk created when someone trades against your quote.

The market-making framework

  1. Define the contract. What exactly settles, when does it settle, and in what units?
  2. Estimate fair value. Use data, assumptions, bounds or a probability model.
  3. Choose a spread. Wider uncertainty, lower liquidity and stronger information asymmetry generally justify more protection.
  4. Track inventory. A fill changes your exposure and can change the next quote.
  5. Update on information. New facts and counterparty behavior can both reveal information.

How to explain a quote

“My fair value is 52. I will quote 49 bid, 55 offered. The spread reflects uncertainty in the input and I will tighten it if we agree on the missing assumption.”

A good explanation separates the center of the market from the width. It also makes clear what evidence would move either one.

Inventory and adverse selection

If you buy from the counterparty, you become long. Your next market may shift lower to reduce the chance of buying more and to encourage selling. But inventory is not the only signal: an informed counterparty choosing one side of your market may imply that your fair value is wrong.

Interviewers can continue the game with repeated trades, news or changed limits. Keep a running position and update the reasoning explicitly.

Common market-making question types

Estimate and quotePrice an uncertain real-world quantity and defend a spread.
Distribution marketQuote a payoff based on dice, cards or a random process.
Sequential informationUpdate after reveals, trades or partial observations.
Position trackingManage P&L and inventory across multiple fills.
Options intuitionRelate payoff shape, volatility and hedging to a market.
ETF or order-book mechanicsUse NAV, spreads, depth and execution costs.

What weak answers miss

  • Giving one number without a bid and ask.
  • Choosing a spread without explaining uncertainty.
  • Forgetting position after a trade.
  • Treating a counterparty trade as non-informative.
  • Moving the quote mechanically without updating fair value.
  • Using excessive precision for an uncertain estimate.

How to practice

Combine estimation, probability and market-microstructure drills. Say every quote aloud, record the fair value and spread separately, and ask what would make you revise each. QuantPrep’s firm profiles can prioritize market-making and trading-game families while keeping the actual numbers fresh.

Turn the guide into timed practice

Select the matching category or firm profile, then run a short session and review every miss.

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