Market Making with Transaction Costs Interview
Market making with transaction costs interview guide for cost-aware fair value, effective spread, expected edge, and quote adjustment.
Candidates reviewing cost-aware trading games.
Costs change the effective quote
Transaction costs shift the net price you actually receive or pay. That changes the effective bid, ask, and expected edge.
Include costs in expected PnL
A fill should be valued after costs, not just at the quoted price. Otherwise the expected PnL is overstated.
Concrete example
If you sell at 101 with a 0.25 cost, the effective sale price is 100.75 before considering any later inventory mark.
Costs can discourage marginal trades
Trades with small gross edge may be skipped or quoted wider when transaction costs absorb the edge.
Separate fixed and variable costs
A fixed cost per trade and a variable cost per unit can lead to different quote-size decisions.
Common mistakes
Candidates often mention costs but fail to put them into the quote arithmetic. Costs need to change the number.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.