Derivatives Foundation interview preparation

Questions

100

Traced to a firm

29

Firms

19

Updated

September 2026

Asked at

All firmsMSMorgan Stanley4Nomura4Akuna Capital2Amundi2HSBC2PIMCO2Bank of America1Barclays1Citadel1DRW1Goldman Sachs1Jane Street1Millennium Management1Mizuho1Old Mission Capital1RCRBC Capital Markets1Scotiabank1UBS1Wells Fargo Securities1

Topic

All topicsForwards and futures10Options basics8Option pricing7The Greeks10Volatility7Option strategies9Swaps and rates7Credit derivatives4Market structure and clearing6Indian derivatives8Trading and markets9Brainteasers6Fit9

Level

AnyCoreIntermediateHard

Type

AnyTechnicalCaseMarket viewBrainteaserFit

1. 077How do you view the market today?Trading and marketsIntermediatetechnicalMizuhoSales and Trading · New York · 2026

   Say this

   Give a structure, not a survey. I would frame it as: here is what the market is currently pricing, here is where I think that pricing is wrong, and here is the trade. Three levels quoted from memory, one view, one thing that would change my mind.

   Then walk it

   1. Open with the pricing, because that is how a trader talks. Where the policy rate is and how many cuts or hikes the curve has in it over the next year. Where ten-year yields are. Where index implied volatility is against realised. Those three numbers tell the interviewer you look at screens.
   2. Then the regime read in one sentence. Something like: the market is pricing a soft landing with the equity risk premium near its lows and volatility subdued, which means the price of being wrong on growth is unusually high.
   3. Then your actual view, stated as a disagreement. Not 'I am cautious' — rather, 'I think the curve has too many cuts priced for the inflation prints we are getting, so I would be paid at the front end.'
   4. Then the derivatives expression, because this is a derivatives seat. If the view is that realised volatility will exceed the low implied, own gamma. If the view is directional with a date attached, use a spread rather than an outright.
   5. Then the falsifier. One data point or level that would make you abandon the view. This is the part that makes you sound like someone who has run risk rather than read commentary.
   6. And know your own numbers. If you quote a level you must be able to say where it was three months ago and what moved it. A wrong number said confidently is worse than saying 'roughly 4 and a quarter, I have not checked this morning'.

   Where candidates lose it

   Summarising the news. Everyone can say inflation is coming down and the Fed is data-dependent. The answer that gets a callback quotes three levels, names one disagreement with the market's pricing, expresses it as a trade, and says what would falsify it. And never invent a number you cannot defend.

   Expect next

   • So what trade would you put on?
   • Where were those levels three months ago?
   • What would make you change your mind?

   Reported by candidates at Mizuho (Sales and Trading, New York, 2026). Source: Wall Street Oasis.

2. 078What is the current market sentiment?Trading and marketsIntermediatetechnicalNomuraGlobal Markets · New York · 2026

   Say this

   Answer it with positioning and prices rather than adjectives. Sentiment is observable: where implied volatility sits versus realised, how steep the skew is, what the put-call ratio and futures positioning look like, and how credit spreads are behaving relative to equities. Then say whether sentiment and fundamentals are pointing the same way.

   Then walk it

   1. The measurable sentiment indicators I would name: index implied volatility and its term structure, the skew or 25-delta risk reversal, high yield credit spreads, and CFTC or equivalent positioning data on the major futures.
   2. The most useful single read is often implied versus realised volatility. A low VIX with even lower realised volatility means complacency is cheap; a low VIX against rising realised means the market has not caught up yet.
   3. Then a cross-asset check, because sentiment is only interesting when assets disagree. Equities at highs with credit spreads widening, or gold making highs with real yields also rising, tells you something is unresolved. Consistent moves across assets tell you less.
   4. Then the positioning point, which is where sentiment becomes tradeable: extreme one-sided positioning makes the market fragile to news that would otherwise be minor, because the marginal buyer is already fully invested.
   5. Say it in one line at the end: 'so the market is priced for a benign outcome with low protection demand, which means the payoff to owning tail hedges is better than usual even though nothing is obviously wrong.' That is a sentiment read that ends in a trade.
   6. And the caveat worth volunteering: sentiment is a terrible timing tool. Extremes can persist for quarters, and 'everyone is bullish' has been a losing short signal far more often than a winning one. I would use it for sizing and for hedging cost, not for entry.

   Where candidates lose it

   Answering with a feeling — 'cautiously optimistic', 'risk-on'. On a markets desk, sentiment means observable positioning and prices. Name four indicators, say what they currently show, and finish with what it implies for the cost of protection. Then admit it is not a timing signal.

   Expect next

   • Which single indicator would you rely on most, and why?
   • Where do assets currently disagree with each other?
   • Has extreme positioning ever been a good short signal?

   Reported by candidates at Nomura (Global Markets, New York, 2026). Source: Wall Street Oasis.

3. 081What is crude trading at right now? And walk me through what has moved it this month.Trading and marketsIntermediatetechnicalRCRBC Capital MarketsSales and Trading · London · 2025

   Say this

   Give the level, name which contract you are quoting, then the two or three drivers with a direction and rough magnitude. And say the curve shape, because on a commodities or macro desk that is half the information.

   Then walk it

   1. Be specific about the instrument. Brent front month versus WTI front month are different numbers with a spread between them, and quoting one when asked about the other is the first mistake. Say 'Brent front month is around X' and give the WTI spread if you know it.
   2. Then the curve: is the front in contango or backwardation and by how much. That tells the interviewer whether inventories are tight, and it is the piece a generalist candidate never has.
   3. Then two or three drivers with direction and size. On the supply side: OPEC+ quota decisions and actual compliance, US shale production, and any outage or sanctions development. On the demand side: Chinese import data, refinery margins, and the growth outlook.
   4. Distinguish flow from fundamentals. A move driven by managed-money positioning unwinding is different from one driven by an inventory draw, and a trader should be able to say which they think it was.
   5. Then the technical level if asked, without pretending it is more than it is: 'the market has failed twice around X, and positioning is long, so a break below Y probably accelerates.' Say it as a description of where the stops are, not as a forecast.
   6. The honest framing if you genuinely do not know the level: say so, give your best estimate with a range, and say when you last checked. 'Brent was around the mid-60s when I looked yesterday' is a perfectly good answer. Inventing a precise number you cannot defend is the one thing that ends the conversation.

   Where candidates lose it

   Quoting a number without saying which contract, or being unable to name the curve shape. And never invent a level — an S&T interviewer knows the screen and will catch a fabricated number instantly. Have three or four markets you genuinely follow daily rather than a shallow view on everything.

   Expect next

   • Is the curve in contango or backwardation?
   • Where is the Brent-WTI spread and what drives it?
   • Was that last move flow or fundamentals?

   Reported by candidates at RBC Capital Markets (Sales and Trading, London, 2025). Source: Wall Street Oasis.

4. 083What do you think this index closes at by the end of the year?Trading and marketsIntermediatetechnicalMSMorgan StanleySales and Trading · Tokyo · 2025

   Say this

   Give a number and build it, do not dodge it. Decompose into earnings growth and multiple: start from current index earnings, apply a growth rate you can defend, apply a multiple with a reason, and you have a level. Then give a range and say what the options market is currently implying, because that is the market's own answer.

   Then walk it

   1. The build: index level equals earnings times multiple. If earnings are growing 8 percent and the multiple is unchanged, you get 8 percent, and then you argue about the multiple — rates, risk premium and the growth outlook.
   2. Give one number and one range. 'My central case is up 6 to 8 percent from here, so roughly X, with a plausible band of minus 10 to plus 15.' Point forecasts are dishonest and no forecast is evasive; the number plus band is the professional answer.
   3. Then the market-implied cross-check, and this is where a derivatives candidate distinguishes themselves: the options market gives you a distribution for free. The at-the-money implied volatility annualised over the remaining period tells you the one standard deviation range the market is pricing, and the skew tells you the market's asymmetry.
   4. So you can say: the market is pricing about a plus or minus 12 percent one standard deviation range with a fat left tail, and my view is inside that range but with less downside than the skew implies — which is a trade, not just a forecast.
   5. Then the trade expression. If your view is modest upside with low volatility, sell a put spread or buy a call spread rather than buying outright calls. Matching the structure to the shape of the view is the point of being on a derivatives desk.
   6. And the risk to name: the level is driven by the multiple far more than by earnings over a one-year horizon, and the multiple is driven by rates and risk appetite, neither of which I can forecast. So the honest version is that my earnings number is a view and my multiple number is an assumption, and I would sensitise it.

   Where candidates lose it

   Refusing to give a number, or giving one with no construction. Both fail. Build it from earnings and multiple, then use the options market to give the range — that second step is free evidence and almost nobody does it.

   Expect next

   • What is the options market implying for the range?
   • Which part of your build are you least confident in?
   • How would you express that view in options rather than futures?

   Reported by candidates at Morgan Stanley (Sales and Trading, Tokyo, 2025). Source: Wall Street Oasis.

5. 084What would your allocation be in today's market?Trading and marketsIntermediatetechnicalAmundiRates · London · 2018

   Say this

   Start with the benchmark and state your deviations, because an allocation answer with no anchor is untestable. Then give three or four active positions, each with a reason, a size and a way of being wrong. And for a rates seat, make duration and curve positioning the centre of the answer rather than an afterthought.

   Then walk it

   1. Anchor first: 'against a 60-40 benchmark' or 'against a global aggregate index'. Then your tilts are measurable and the conversation can be about the tilts rather than about taste.
   2. Then the positions with sizes. Something like: duration slightly short of benchmark because the curve has too much easing priced; overweight the front end versus the long end, which is a steepener; underweight credit because spreads are near cycle tights and the compensation for illiquidity is thin; and a small allocation to convexity through options rather than cash.
   3. Each position needs one sentence of reasoning that refers to a price, not a sentiment. 'Spreads at X basis points against a cycle median of Y' is a reason. 'Credit feels expensive' is not.
   4. For a rates desk, be specific about the curve rather than the level. Level views are crowded and hard; curve and cross-market views — this country's five-year against that one's — are where rates managers actually take risk, and saying so shows you know the seat.
   5. Then the risk budget, which is what separates an allocation from a list. Say how much of your tracking error each position consumes, and note that a steepener and a credit underweight are correlated positions in a risk-off event, so you cannot size them independently.
   6. And the falsifier: name the data point that would make you cut. For the duration view it is a run of inflation prints above expectation; for the credit view it is spreads tightening through a level at which the carry no longer compensates. Ending on what would change your mind is the difference between an allocation and an opinion.

   Where candidates lose it

   Listing asset classes with adjectives and no benchmark, no sizes and no correlations. The interviewer is testing portfolio construction, not market views. And on a rates seat, if your answer is entirely about the level of yields and never about the shape of the curve, you have answered the wrong question.

   Expect next

   • Which two of those positions are correlated?
   • How much of your risk budget does each consume?
   • What would make you cut the duration position?

   Reported by candidates at Amundi (Rates, London, 2018). Source: Wall Street Oasis.

6. 085How would you allocate one million dollars versus one billion dollars?Trading and marketsIntermediatetechnicalScotiabankSales and Trading · Toronto · 2025

   Say this

   The million is a pure return problem, the billion is a liquidity and market-impact problem. At a million I can own whatever I like and get in and out in a day. At a billion my own trading moves prices, my universe shrinks to what can absorb size, and the constraint becomes how I build and exit a position rather than what I want to own.

   Then walk it

   1. At a million: concentrated is rational. Five to ten positions, small and mid caps available, options strategies viable in size because a hundred contracts is nothing to the market. Transaction costs are a rounding error.
   2. At a billion, capacity binds. A 5 percent position is 50 million, and in a small cap that is weeks of average daily volume — so the small and mid cap universe largely disappears, and I am pushed towards large caps, index derivatives and government bonds.
   3. Market impact becomes the dominant cost. Building 50 million in a moderately liquid name will move it, and the impact is not recovered. So execution — algorithms, participation rates, blocks, working the order over days — becomes part of the investment decision rather than a back-office task.
   4. The derivative alternative is the interesting answer for this desk: at a billion, index futures and total return swaps let me take beta exposure instantly without moving underlying stocks. Get the market exposure on cheaply in futures, then build the alpha positions slowly underneath.
   5. Number of positions rises for capacity reasons rather than diversification reasons, and that mechanically dilutes any edge. This is the core reason large funds' returns converge towards the index — not worse ideas, just less ability to express them.
   6. And the exit is the part people forget. A position you can build over three weeks may need to be sold in three days in a crisis, when liquidity is a fraction of normal. So at a billion I would size positions against stressed liquidity, not average liquidity, and keep a derivative overlay as the fast lever. The reason to do this is not theoretical: it is exactly the mismatch that forced the 2022 UK LDI funds and several credit funds into distressed selling.

   Where candidates lose it

   Answering it as a risk-tolerance question — 'more diversified with more money'. The real answer is capacity, market impact and exit liquidity, and the derivatives-desk version is that futures and swaps let you separate getting the exposure on from building the position. Size against stressed liquidity, not average.

   Expect next

   • How would you get the beta on quickly at a billion?
   • How does capacity dilute your edge?
   • How would you size against stressed liquidity rather than average?

   Reported by candidates at Scotiabank (Sales and Trading, Toronto, 2025). Source: Wall Street Oasis.

Firm tags come from public, anonymous candidate reports on Wall Street Oasis: strong signal, not sworn testimony. Firms are named as the places a question was reported, not as partners of Fin Maverick. Answers are written for this page to show how to think out loud; they are not scripts to recite.