Market Making Probability Estimation Interview
Market making probability estimation interview guide for converting probabilities into fair values, updating signals, and comparing implied prices.
Candidates quoting binary or event-based markets.
Probability can be fair value
For a binary payoff that pays 100 if an event happens, a 37 percent probability estimate maps to a simple fair value of 37.
Calibrate before quoting
A market-making answer is stronger when you admit uncertainty in the probability estimate and choose a spread that reflects that uncertainty.
Concrete example
If you estimate a 60 percent chance of an event that pays 1, the fair value is 0.60 before fees, spread, or risk adjustment.
Update with signals
A new signal can change the probability estimate. Explain whether the signal is strong enough to move fair value or only widen the spread.
Compare to implied probability
If a quote implies 45 percent and your estimate is 55 percent, the difference may be edge, but only after considering uncertainty and costs.
Common mistakes
Candidates often quote a probability without saying how confident they are. In market making, confidence affects spread width.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.