Market Making Fair Value Interview Questions
Market making fair value interview questions for estimating a midpoint before setting bid-ask quotes in trading games.
Candidates practicing fair-value estimation in trading games.
Fair value is the quote anchor
Fair value is your best estimate before adding spread, inventory skew, or risk adjustment. In a toy interview market, it often starts as expected payoff.
Estimate the distribution
List the possible outcomes, probabilities, and payoffs. If the prompt is vague, state a simple assumption and say how better information would update it.
Concrete example
If a binary contract pays 100 with probability 40 percent and 0 otherwise, a simple risk-neutral fair value is 40 before fees or risk adjustments.
Separate value from spread
The fair value can be 40 while your quote is 38 at 42. The spread compensates for uncertainty, adverse selection, and the need to earn edge.
Update with information
A trade, signal, or revealed clue can change the fair value. Explain whether the new information changes the midpoint or only changes your risk appetite.
Common mistakes
Candidates often treat the first quote as the fair value. It is cleaner to state fair value first, then explain bid, ask, and spread.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.