How do you answer a make a market interview question?

In this article

1. Before you start
2. Why interviewers ask this
3. Making a market from first principles
4. Worked example
5. Trade-offs and edge cases
6. How to answer it in an interview
7. Common mistakes
8. Follow-up questions
9. Sources

Before you start

This page is one step of the quantitative finance interview guide; trading-desk questions of the same family are in sales and trading interview questions.

Why interviewers ask this

The make a market exercise shows in a few minutes whether a candidate thinks about who is on the other side of a trade. A trader who quotes without that thought loses money to people who know more, so the exercise tests judgement under uncertainty, not arithmetic.

Candidates report the exercise in trading and quantitative interviews. One prep guide describes it as being asked to "quote a two-sided market — a bid and an ask with size — on some uncertain quantity", and says it is graded on process, not on whether the number is right. Another lists what you must do: "explain a fair value, quote a bid and ask, track the resulting position, and revise your decisions as information changes". We found no firm document that describes the marking, so treat these criteria as advice from prep sites.

A weak answer quotes a number and defends it. A strong answer ties the width of the quote to its uncertainty and changes the quote after trades. A Staff-level answer also checks that related markets stay consistent. More questions of this kind are in the quant finance interview questions guide; other topics are in the full learning library.

Making a market from first principles

Two-sided quote

A two-sided quote is a pair of prices, a bid and an ask, that a market maker states together for one instrument, usually with a size, committing to buy at the lower price and sell at the higher one. In an interview the instrument is an uncertain quantity, such as a die roll or the sum of several dice.

Fair value

Fair value is the price at which buying and selling have the same expected profit, which for a quantity with known odds is its expected value. For a fair die it is the average of the six faces, and it is the centre around which the bid and ask are placed.

Adverse selection

Adverse selection is the loss a market maker suffers because the traders who accept its quotes are more likely to know something than an average trader, so its fills arrive when the quote is wrong. The result is that a market maker must charge a spread even when it expects to earn nothing overall.

In plain words

Picture a currency booth at an airport. It buys euros from you at one rate and sells them to you at a higher one. The gap pays the booth for holding stock and for taking risk. The analogy breaks in one place: the booth reads the true rate from a screen. In the interview you only know the odds, and some counterparties may know more.

In one precise sentence, making a market means stating a bid below your fair value and an ask above it, then adjusting both after every trade. The bid is the highest price at which a buyer will pay. The ask is the lowest price at which a seller will accept. The Securities and Exchange Commission investor glossary puts it that way. The quotes belong to the market maker, so the customer sells at your bid and buys at your ask.

Step 1: Find fair value

Fair value is the expected value of the quantity. For one fair die it is the sum of the faces divided by six, which gives 3.5.¹ For the sum of two dice it is 7, and for three dice it is 10.5, the value one prep guide uses for a three-dice example.¹

Input: a description of the uncertain quantity. Output: a centre and a sense of how far outcomes spread around it. The standard deviation supplies the second part: it is about 1.71 for one die, 2.42 for two and 2.96 for three.¹ A quantity with a larger standard deviation deserves a wider quote, which is the point of step 2. You now know where to centre the quote; next you set its edges.

Step 2: Quote a bid and an ask around it

A quote places the bid below fair value and the ask above it. The spread is the ask minus the bid; the Securities and Exchange Commission says the difference between the bid price and the ask price is called the "spread."

On a fair die, a quote of 3.25 bid and 3.75 ask has a spread of 0.5 and a midpoint of 3.5, as in a worked drill on a prep site.¹ Each fill against an uninformed counterparty earns half the spread, 0.25, versus the midpoint, and a round trip (one buy plus one sell) earns the full spread.¹ Market makers make their money on the spread, and spreads are tighter in liquid markets, as Optiver explains, because the market maker risks less.

Always state a size, such as one contract each side. Input: fair value and your uncertainty. Output: bid, ask and size.

Step 3: One informed trade can cost more than several fills earn

A positive spread does not ensure a profit, because some counterparties know more than you. Suppose the interviewer sees the die before trading. On rolls of 1 to 3 they sell to you at 3.25, and on rolls of 4 to 6 they buy from you at 3.75. You lose 2.25, 1.25 and 0.25 in the first case and 0.25, 1.25 and 2.25 in the second, as the same prep site tabulates. The average loss is 1.25 per trade, five times the 0.25 an ordinary fill earns.¹

Economists call this adverse selection. Glosten and Milgrom (1985) show that "the presence of traders with superior information leads to a positive bid-ask spread even when the specialist is risk-neutral and makes zero expected profits." Informed traders make a positive spread necessary. The input is a fill; the output is a question you must now ask: who would trade at this price?

Step 4: Move your quote after each fill

After each fill you skew, widen or cut size. If the interviewer buys from you at your ask, you are short (you have sold a contract you do not own, so you lose if the value rises), so you raise both prices. In the three-dice example, QuantVault opens at 9.5 bid and 11.5 ask and moves to 10 and 12 after a buy, reflecting inventory (the position you now hold) plus information.

Applied to the die, a shift of 0.25 (illustrative) turns 3.25/3.75 into 3.5/4.0.¹ If the same side is hit again, the counterparty may know something, so you widen the quote and cut your size. The same guide names the opposite mistake: never moving after repeated buys leaves informed flow (trades by people who know more than you) trading against stale quotes. Each fill is a new data point, and re-centring your fair value after each one is the same one-step-at-a-time updating that random-walk questions practise.

1 · Fair value2 · Quote3 · Informed flow4 · MoveReplay

Step-by-step description

1. Fair value is the expected value of the quantity.
2. The bid goes below fair value and the ask above it.
3. Informed traders make a positive spread necessary.
4. After each fill you skew, widen or cut size.

• Fair value is the expected value of the quantity.
• The bid goes below fair value and the ask above it.
• Informed traders make a positive spread necessary.
• After each fill you skew, widen or cut size.

The four steps in the figure are the whole answer. Fair value is the expected value of the quantity. The bid goes below fair value and the ask above it. Informed traders make a positive spread necessary. After each fill you skew, widen or cut size.

Worked example

This example prices a quote on a fair die at 3.25/3.75 and compares it with a wider one at 3/4. The die, the quotes and the informed counterparty are the drill from step 3; the script re-computes every figure.¹

The break-even share comes from setting the average earnings equal to the average loss: with informed share f, earnings are (1 − f) × 0.25 and the loss is f × 1.25, which balance at f = 0.1667.¹ Widening to 3/4 cuts the average informed loss from 1.25 to 1.0 while doubling the half-spread to 0.5, which lifts the break-even share to 0.3333.¹

Text description of the diagram

• The loss is 2.25 on a roll of 1 or 6 and 0.25 on a roll of 3 or 4.
• The average loss is 1.25 per trade.

The loss is 2.25 on a roll of 1 or 6 and 0.25 on a roll of 3 or 4. The average loss is 1.25 per trade.¹

A simple model shows how the spread follows from the informed share. Let the asset be worth 12 or 8 with equal chance (illustrative), and let a fraction π of traders know which. Setting the ask to the expected value given a buy and the bid to the expected value given a sale gives a spread of π times the 4-point gap in value. At π = 0.1 the quote is 9.8/10.2, at π = 0.3 it is 9.4/10.6 and at π = 0.5 it is 9.0/11.0.¹ This is a stripped-down version of the model in the 1985 paper, written for illustration only.

Trade-offs and edge cases

A make-a-market answer trades the chance of being traded against the cost of being picked off. Two failure modes bracket it. A quote that is too tight on a quantity with large uncertainty shows you do not link the spread to risk, which the QuantVault guide lists as a trap. A quote that is too wide means nobody trades, and the interviewer wants to see you willing to trade.

Reported practice differs on the opening width. One prep site quotes 6.50/7.50 on the sum of two dice, while on three dice QuantVault opens with a spread of 2 (9.5/11.5) because the quantity is more uncertain. A width is defensible if you can say why.

Related markets must agree. If you quote each of two dice at 3.25/3.75 and then quote their sum at 7.6 bid, a counterparty buys both dice from you for 7.5 and sells you the sum for 7.6, a free 0.1.¹ A prep site treats this check as part of the exercise.

Text description of the diagram

• Repeated trades on one side suggest the counterparty knows something.
• A larger request means you cut your size.

Repeated trades on one side suggest the counterparty knows something. A larger request means you cut your size. A single small fill carries little information, so a nudge is enough. A quote that contradicts a related market gives away money until you fix it.

How to answer it in an interview

The spoken structure: give fair value, state the quote with size, explain the spread by the risk of informed trades, then say how you will move after a fill.

Common mistakes

• "Wider is always safer." (wrong) A quote nobody accepts earns nothing. (right) "I set the width from the uncertainty, and I am willing to trade at it."
• "A tight quote looks confident." (wrong) It ignores the quantity's spread of outcomes. (right) "A tighter quote needs a smaller standard deviation or less informed flow."
• "I keep my quote, because I trust my fair value." (wrong) Repeated hits on one side may carry information. (right) "I skew, widen and cut size after repeated fills."
• "A positive spread means I make money." (wrong) One informed trade can cost more than several fills earn. (right) "The spread pays only if informed trades are rare enough."
• "The bid is what the customer pays." (wrong) The customer pays the ask. (right) "The customer sells at my bid and buys at my ask."

Follow-up questions

What does "make me a market" mean in a trading interview?

It means quote a bid and an ask, with a size, on an uncertain quantity, then trade against the interviewer's orders. The goal is to show how you set fair value, choose the spread and react to fills.

How wide should my spread be?

Wide enough to cover the expected cost of informed trades, narrow enough that uninformed traders still accept it. In the die example the break-even informed share rises from 0.1667 to 0.3333 when the quote widens from 3.25/3.75 to 3/4.¹

What do you do when the interviewer keeps buying from you?

Raise both prices, then widen the quote and reduce your size. Repeated buys suggest the counterparty knows something, and holding the old quote makes you a free option for them (a bet they can win without risk).

Is the answer graded on getting the number right?

Prep sites say it is graded on process: fair value, a spread tied to uncertainty, and the reaction to fills. We found no firm document that confirms the marking.

How do you make a market on the sum of two dice?

Centre the quote on the expected value of 7 and widen it relative to a single die, since the standard deviation is about 2.42.¹ Then check that the quote does not allow a free trade against your quotes on each die.

Sources

1. Bid Price/Ask Price (glossary) — Securities and Exchange Commission, Investor.gov, 26 Oct 2026
2. Spread — Securities and Exchange Commission, 18 Dec 2002
3. Bid-ask spread explainer — Optiver, 26 Oct 2026
4. Bid, ask and transaction prices in a specialist market with heterogeneously informed traders — Columbia Business School (Glosten and Milgrom, Journal of Financial Economics 14(1)), 1 Mar 1985
5. Market-making game interview guide — QuantVault (interview-prep site), 3 Jul 2026
6. Market-Making Interview Questions: Worked Drills — QuantBlueprint (interview-prep site), 26 Oct 2026
7. Market making interview questions — Quantt (interview-prep site), 26 Oct 2026
8. Market making games in quant interviews — Halley (interview-prep newsletter), 26 Oct 2026