Market Making Hedging Interview Questions
Market making hedging interview questions for reducing inventory exposure after trades while accounting for residual risk and costs.
Candidates asked how to reduce exposure after trades.
Hedging reduces exposure
A hedge is a position or action meant to offset risk from inventory. It does not make the original trade risk-free.
Name the exposure first
Before proposing a hedge, say whether the risk is directional, volatility, correlation, inventory, or another exposure.
Concrete example
If you are long an asset after buying from a customer, selling a related instrument can reduce directional exposure if the hedge relationship is reasonable.
Residual risk remains
A hedge may be imperfect, costly, or require rebalancing. Mention what risk remains after hedging.
Quote impact
If hedging is expensive or unavailable, quote wider or smaller to compensate for carrying more risk.
Common mistakes
Candidates often say hedge it without explaining what instrument offsets what risk and at what cost.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.