Bid Ask Spread Interview Intuition
Bid ask spread interview intuition for why market makers quote around fair value instead of at a single exact price.
Candidates who need to explain spread, edge, and uncertainty in market-making games.
Spread surrounds fair value
A market maker usually quotes a bid below fair value and an ask above fair value. The midpoint reflects value; the spread reflects risk and compensation.
Uncertainty widens spread
When fair value is noisy or the payoff distribution is wide, a wider spread can be justified because each trade exposes the market maker to more risk.
Concrete example
With fair value near 100, a quote of 99 bid and 101 ask is tighter than 97 bid and 103 ask. The tighter quote is more competitive but gives less protection.
Spread is not guaranteed profit
A wide spread only helps if trades happen at prices that compensate for information, inventory, and risk. Bad fills can still lose money.
Practice path
For each market-making drill, say the fair value, choose a spread width, then explain one reason the spread should be wider or tighter.
Common mistakes
Candidates often quote too tight to look confident or too wide without justification. Both are weaker than a quote tied to uncertainty and incentives.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.