Market Making Risk Limits Interview Questions
Market making risk limits interview questions covering inventory caps, loss limits, drawdown, quote skew, and size reduction.
Candidates discussing constraints during trading games.
Risk limits constrain good-looking trades
A trade can have positive expected value and still be too large or too risky for the current game state.
Inventory caps matter
If your position is near a limit, you may quote less aggressively on the side that increases exposure and more aggressively on the side that reduces it.
Concrete example
If your inventory limit is 10 units and you already hold 9, your next bid should usually reflect the risk of buying one more unit.
Loss and drawdown limits
A drawdown limit can force conservative quoting even when the midpoint estimate has not changed.
Size can change before price
Sometimes the cleanest adjustment is to reduce quote size rather than moving price dramatically, if the game allows size choice.
Common mistakes
Candidates often maximize edge per trade while ignoring cumulative exposure. Market-making answers need current position and remaining risk budget.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.