Market Making Signal Update Interview
Market making signal update interview guide for revising probability, fair value, spread, and quotes after noisy signals.
Candidates combining Bayesian updates with market making.
Signals update beliefs
A signal should change your quote only through what it says about the underlying payoff or the uncertainty around that payoff.
State signal quality
Before updating, say whether the signal is accurate, noisy, biased, delayed, or ambiguous. Signal quality controls how much the quote should move.
Concrete example
If a noisy signal moves your event estimate from 50 percent to 58 percent, fair value rises, but the spread may stay wide if false positives are common.
Update spread as well as midpoint
Some signals move the midpoint. Others mostly increase uncertainty, which can justify widening the bid-ask spread.
Connect to action
The final output is still a quote: fair value estimate, bid, ask, and any inventory-aware skew.
Common mistakes
Candidates often treat the signal value itself as the posterior probability. The posterior requires base rate and signal accuracy.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.