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. 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.

2. 082Pitch me a ten-year trade.Trading and marketsHardsuperdayBank of AmericaSales and Trading · London · 2025

   Say this

   A ten-year horizon means the trade has to rest on a structural change, not a cycle, and it has to be expressible in an instrument that survives ten years. So: name the structural driver, name the instrument, state the carry, and be explicit about what could make the structure wrong rather than just the timing.

   Then walk it

   1. Pick a driver that is demographic, fiscal, technological or regulatory — something that does not mean-revert inside the horizon. Ageing populations and their effect on savings and fiscal deficits, the electrification of energy demand, the fiscal cost of defence rearmament in Europe, or the structural build-out of power capacity for computing.
   2. Then the instrument, and be realistic. Nothing liquid trades for ten years in options, so a long-horizon view is usually expressed in a forward-starting swap, a curve steepener rolled forward, physical exposure, or equity in the beneficiaries. If your idea needs a ten-year option, say that the structure would have to be a bespoke OTC trade and price accordingly.
   3. State the carry explicitly. A view that costs 3 percent a year to hold needs the structural move to be very large, and most long-horizon trades fail on carry rather than on being wrong. The best structural trades are ones where you are paid to wait.
   4. Give a worked example rather than a theme: 'I would be a receiver of the very long end in a country with a shrinking workforce and a pension system that has to buy duration, funded by paying the belly, because the demographic flow is a known buyer for a decade.' Name the flow, not the feeling.
   5. Then the falsifier at the structural level. Not 'if it goes against me', but 'if the demographic assumption is offset by immigration policy, or if the fiscal response changes the supply of duration, the trade is wrong in kind rather than in timing'.
   6. And the risk management: a ten-year view held in a mark-to-market book still has to survive drawdowns, so I would size it as a carry position with periodic reassessment, not as a conviction trade I refuse to cut. Being right in 2035 is no use if the position is closed in 2027.

   Where candidates lose it

   Pitching a cyclical view with a ten-year label on it — 'I think rates go down'. The question is testing whether you can separate structural from cyclical and whether you know what instruments actually exist at that horizon. Naming the carry and the instrument constraint is what makes it sound like a desk answer.

   Expect next

   • What instrument actually exists at that maturity?
   • What does the trade cost you to hold each year?
   • What would tell you the structure, not just the timing, was wrong?

   Reported by candidates at Bank of America (Sales and Trading, London, 2025). Source: Wall Street Oasis.

3. 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.

4. 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.

5. 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.

6. 086Two separate games have the same expected value. Which would you choose?BrainteasersIntermediatetechnicalAkuna CapitalSales and Trading · Chicago · 2025

   Say this

   Expected value is not enough information, so I would ask about the variance, whether I can play repeatedly, and what fraction of my capital is at stake. Same expected value, lower variance wins if I play once. If I can play many times and size small, I would take the higher variance game if it has any edge, because repetition converts edge into certainty.

   Then walk it

   1. First, name what is missing: the distributions. Two games can share an expected value and have completely different shapes — one pays 1 with certainty, the other pays 1,000 with probability one in a thousand.
   2. One-shot, meaningful fraction of capital: take the low variance game. Utility is concave and a single large loss is not recoverable, which is the whole content of the Kelly and utility arguments.
   3. Repeated play with small sizing: variance matters much less because the law of large numbers works for you. Then I would prefer whichever game has the better edge per unit of capital tied up, and the higher variance one may well be more profitable per dollar deployed.
   4. The crucial extra question is ruin. If the high variance game can take me to zero, no expected value justifies it, because zero is absorbing. So my real decision rule is: maximise growth subject to never risking ruin, which is Kelly sizing, not expected value maximisation.
   5. A concrete version: a coin flip paying 2 to 1 on heads has a positive edge, and betting your whole stack each time gives you an expected value that rises and a probability of ruin that approaches one. Expected value and survival are different objectives.
   6. So the answer I would actually give a trader: I choose neither until I know the variance and the sizing, and then I size by Kelly and prefer the game with the better ratio of edge to variance. That ratio is the Sharpe ratio, and preferring it is the same instinct as running a book rather than making a bet.

   Where candidates lose it

   Picking one and defending it. The question has no answer as stated, and the interviewer is testing whether you ask for variance, repetition and sizing. A candidate who says 'they are the same, so I am indifferent' has failed. A candidate who asks three questions before choosing has passed.

   Expect next

   • What if you could play a thousand times?
   • What if one game could take you to zero?
   • How would you size the bet?

   Reported by candidates at Akuna Capital (Sales and Trading, Chicago, 2025). Source: Wall Street Oasis.

7. 087Make me a market on something you cannot know. Now, how much would you risk to win 100 dollars if the real answer is inside your market?BrainteasersIntermediatetechnicalAkuna CapitalTrading · Chicago · 2025

   Say this

   If I believe my own market, the answer being inside it is the outcome I expect, so I should be willing to risk a meaningful amount — but the question is a test of whether my market was honest. The right response is to state my confidence as a probability, then size the bet from that probability, not from bravado.

   Then walk it

   1. First, be clear what a market means: a bid and an offer I am willing to be traded on either side of. If I quote 40 at 60, I am saying I will buy at 40 and sell at 60, and the width is my uncertainty.
   2. So the follow-up question is really 'what is your confidence that the answer lies between 40 and 60?' If I say 80 percent, the fair stake to win 100 is around 25 — because at 4 to 1 in my favour, risking 25 to win 100 is the break-even at 80 percent.
   3. That arithmetic is the answer: my willingness to bet has to be consistent with the width I quoted. If I quoted a tight market and then refuse to bet, my market was dishonest. If I quoted a wide market and bet enormously, I was sandbagging.
   4. Then apply a sizing discount for the fact that the interviewer has information I do not, or is choosing the question because it is adversarial. Betting against someone who knows the answer means adverse selection, and the correct response to adverse selection is to widen the market, not to bet bigger.
   5. So I would say: I quote 40 at 60, I am about 75 to 80 percent confident, and I would risk 20 to win 100 — and if you want me to risk more than that, I need to widen my market first. That trade-off between width and size is exactly the market maker's job.
   6. And I would say the meta-point out loud, because it is the point: the test is consistency between my quoted uncertainty and my willingness to back it. A trader who cannot price their own confidence cannot be trusted to price anything else.

   Where candidates lose it

   Answering with a number to look brave, or refusing to bet at all. Both fail. The answer must tie the stake to the probability implied by the width you quoted, and it should mention adverse selection — the interviewer picked this question for a reason. Consistency is being graded, not courage.

   Expect next

   • Your market was 40 at 60. What probability does your bet imply?
   • I want to bet ten times that size. What do you do?
   • Why should you widen rather than bet bigger when I know more than you?

   Reported by candidates at Akuna Capital (Trading, Chicago, 2025). Source: Wall Street Oasis.

8. 088Compute the probability and then bet on whether you draw another black stone.BrainteasersHardtechnicalCitadelQuantitative Trading · New York · 2025

   Say this

   Two parts, and the second is the real test. Compute the conditional probability by Bayes, updating on what has already been drawn, then price a bet at odds that give you an edge and size it so a wrong answer does not end you. Most candidates get the arithmetic and then bet like the arithmetic is certain.

   Then walk it

   1. Set up the inference properly. If the composition of the bag is unknown, drawing a black stone is evidence about the composition, so you update over the possible bags rather than treating the draw as independent.
   2. The classic version: two urns, or a bag with an unknown mix, and a black draw raises the posterior weight on black-heavy compositions. With no replacement, conditioning on the draws already made is essential — a common error is to compute the unconditional probability and hand it over.
   3. Worked case to show the mechanism: three stones, one known black, one known white, one unknown with equal odds. You draw black. Posterior probability the unknown is black rises to two thirds, so the next draw being black is now more likely than the prior suggested. That is the Bayes step they are checking.
   4. Then the betting step, which is where the interview is decided. If my computed probability is 0.6, I want odds better than 3 to 2 to have an edge. I would quote a market rather than accept theirs — say I am a buyer at 55 and a seller at 65 — because that is the trading answer rather than the maths answer.
   5. Then sizing. Kelly says stake a fraction equal to the edge over the odds, and in an interview I would bet a small multiple less than Kelly, because my probability estimate is itself uncertain and Kelly assumes it is not.
   6. And I would say the honest caveat: my probability depends on my prior over the bag's composition, and if I have the prior wrong my edge is imaginary. So I would take the bet at odds that leave room for my model being wrong, which means demanding better than fair odds rather than exactly fair ones.

   Where candidates lose it

   Computing the probability and then accepting whatever odds are offered. Citadel is watching whether you distinguish your estimate from your confidence in it, quote a two-way market, and size below Kelly because the input is uncertain. The maths is the easy half.

   Expect next

   • What is your prior over the bag's composition, and how much does the answer depend on it?
   • What odds do you need to take the bet?
   • How much would you stake, and why not more?

   Reported by candidates at Citadel (Quantitative Trading, New York, 2025). Source: Wall Street Oasis.

9. 089There are n cars on a circular track and between them just enough petrol for one car to complete a lap. Show that there is a car that can complete the lap by collecting petrol from the others as it goes.BrainteasersHardsuperdayMillennium ManagementInvestments · London · 2024

   Say this

   Yes, such a car always exists. The cleanest proof: imagine a phantom car with enough fuel to complete the lap anyway, start it anywhere, and track its fuel level as it picks up each deposit. The point at which its fuel is at its minimum is a valid starting car — from there the cumulative balance never goes negative.

   Then walk it

   1. Set it up as a sequence of partial sums. Going around the circle, each car contributes a gain of its petrol and each gap costs fuel. Total gains minus total costs is exactly zero, because there is precisely one lap's worth.
   2. The argument: define the running balance starting from an arbitrary car. It ends at zero. Take the position where the running balance is at its global minimum, and start there instead. Relative to that point, every partial sum is non-negative, because you subtracted the most negative value from all of them.
   3. So the starting car is the one immediately after the minimum of the cumulative balance. That is a constructive answer, not just an existence proof, which is what makes it satisfying.
   4. There is an induction proof too: with n cars, there must exist some car that has enough petrol to reach the next one — otherwise the total would be insufficient. Merge those two into a single car and you have the same problem with n minus 1. Induct down to one car, which trivially works.
   5. One line for n equals 2 to show the mechanism: if car A has 0.7 laps of fuel and B has 0.3, and the gap from A to B is 0.4, then A cannot reach B directly if it only had 0.3 — the partial-sum argument tells you which one to pick without checking cases.
   6. Why this gets asked at a fund rather than in a maths class: it is the same structure as a cash flow or margin problem. You know the total is sufficient and you need to know whether the path ever goes negative. That is exactly a funding liquidity question, and the answer is always about the minimum of the cumulative balance, not the total.

   Where candidates lose it

   Trying small cases and asserting a pattern. The interviewer wants the partial-sum or induction argument. And the move that impresses is connecting it to cash flow timing — total sufficiency does not imply path feasibility, which is the whole of liquidity risk.

   Expect next

   • Give me the induction version of the proof.
   • Is the starting car unique?
   • What financial problem has exactly this structure?

   Reported by candidates at Millennium Management (Investments, London, 2024). Source: Wall Street Oasis.

10. 090How many taxis are there in Hong Kong Central?BrainteasersIntermediatetechnicalHSBCSales and Trading · Hong Kong · 2026

    Say this

    I would build it from demand rather than guess at a fleet. Central has roughly 250,000 to 300,000 daytime workers and visitors, say 10 percent take a taxi on a given day, so about 25,000 to 30,000 trips. A taxi does maybe 25 trips a day, so around 1,000 to 1,200 taxis serving Central at any time. As a sanity check, Hong Kong licenses about 18,000 taxis in total, so Central holding 5 to 7 percent of them is plausible.

    Then walk it

    1. State the approach before the arithmetic: demand side, because I can estimate people and trips more reliably than I can estimate a fleet directly.
    2. Population of Central during the working day: it is a dense financial district, so a few hundred thousand is the right order. I would say 250,000 and flag that as my biggest uncertainty.
    3. Trips per person per day: most people walk or take the MTR in Central because it is compact and well-served, so I would use 10 percent rather than something higher. That gives 25,000 trips.
    4. Trips per taxi per day: a 10-hour shift with an average trip and repositioning taking 20 to 25 minutes gives roughly 25 trips. So 25,000 over 25 is about 1,000 taxis.
    5. Then the cross-check from the supply side, which is what makes the answer credible: Hong Kong's total licensed fleet is around 18,000, a number that is publicly known and stable because licences are capped. My 1,000 to 1,200 for Central is a believable share of it.
    6. And I would name the sensitivity: the answer is most sensitive to the trips-per-person assumption. Double it to 20 percent and I get 2,000 taxis. So my honest answer is a range of roughly 1,000 to 2,000 with a central case around 1,200, and I would want the actual taxi stand data to tighten it.

    Where candidates lose it

    Guessing a number and then rationalising it. And in Hong Kong specifically, ignoring that Central is compact and MTR-dense — a candidate who uses a New York taxi propensity will be out by a factor of three. Cross-check from the licensed fleet, and name which assumption drives the answer.

    Expect next

    • Which assumption is your answer most sensitive to?
    • Now do it as a fleet-size estimate and see if the two agree.
    • How many beds are there in a New York hotel?

    Reported by candidates at HSBC (Sales and Trading, Hong Kong, 2026). 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.