Lessons · Trading

Making markets and estimating

"Make me a market on the number of piano tuners in Chicago." Trading interviews ask for a bid and an ask on numbers you can't know. They're testing how you reason, size your uncertainty and react to information, not your trivia.

What a market is

A bid is the price you'll buy at; an ask (or offer) is the price you'll sell at. "Make a market on X" means: give a bid below your estimate and an ask above it, such that you're happy to trade either way. The gap between them is the spread.

Too wide, and your market is useless: nobody trades with you, and the interviewer will push you to tighten.
Too tight around a bad estimate, and you get "picked off": someone who knows better buys your low ask or sells to your high bid.

Estimate by breaking it down

Fermi estimation turns an unknowable number into pieces you can roughly know:

Anchor on something you're sure of (a population, a distance, a size).
Decompose into factors: how many people, what fraction, how often, how long.
Multiply and round to one significant figure.
Sanity check against another anchor.

For "seconds in a year": 60 × 60 × 24 × 365 ≈ 3,600 × 24 × 365 ≈ 86,400 × 365 ≈ 31.5 million. If someone quotes you 3 billion, you know they're off by 100×.

Set the width from your uncertainty

Think in ratios, not differences. If you're confident within about 20%, a market like 80 / 100 around an estimate of 90 is reasonable. If you could be off by 10×, start wider and say why. Interviewers want to hear your reasoning, then see you tighten as you learn more.

React to trades

If the interviewer buys your ask, that's information: they may think the true value is higher. Move your market up. If they keep selling to you, move it down. Good traders update quickly but don't overreact to a single trade.

Score yourself honestly

In Edge's Make a Market game, a quote that contains the true value scores 100 × bid ÷ ask, so tighter quotes earn more. A quote that misses costs points. After each round you'll see how wide you were and in which direction you missed.

Common traps

Anchoring on a bad first guess. Decompose before you commit to a number.
Symmetric spreads on skewed quantities. For counts that can't go below zero, uncertainty is multiplicative, so your market should be wider above your estimate than below.

Play it: Make a Market (73 questions) · All lessons