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. 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.

2. 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.

3. 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.