Market Making Pairs Trading Interview Intuition
Market making pairs trading interview intuition for relative value, correlated markets, divergence, convergence, and residual risk.
Candidates seeing pair or relative-value trading-game prompts.
Pairs thinking is relative value
A pairs-style prompt asks whether two related markets are mispriced relative to each other, not only whether one standalone quote is fair.
Correlation is not identity
The pair can diverge. A relative-value argument needs a reason the relationship should hold and a risk if it does not.
Concrete example
If two related contracts usually move together and one quote moves sharply while the other does not, there may be a relative-value update to consider.
Inventory can offset or compound
Long one related market and short another can reduce some exposure but create basis risk.
Quote both markets consistently
If your view changes the relationship, update both quotes or explain why only one quote moves.
Common mistakes
Candidates often assume convergence without naming the driver. Relative value needs a reason and a risk caveat.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.