In a live market-making exercise the interviewer is not a passive scorer. They are trading against you, often with information you do not have, and how you respond is much of the assessment.
The strongest signal: repetition
One trade tells you little. Three trades on the same side tells you a lot.
If the interviewer has lifted your offer three times, the most likely explanations are that your market is too low, or that they know something. Both call for the same response: move your market up.
Candidates who keep re-quoting the identical market after repeated one-sided fills are demonstrating exactly the failure that adverse selection describes.
Say it out loud
"You've bought from me three times, so I think I'm too cheap - I'm moving my market to 105 / 109."
That sentence does three jobs: it shows you tracked the flow, it shows you drew the right inference, and it invites correction if you have misread. See thinking out loud.
Explicit information
Interviewers often volunteer facts mid-game: "the true value is above 50", or "I'll tell you one of the dice is a six".
Two failures here, both common:
- Not updating at all. Fatal.
- Updating in the wrong direction, or by an absurd amount. Moving your market from 40/60 to 49.9/50.1 on one weak piece of information is over-reaction.
Update proportionally to how much the information actually narrows the distribution.
Do not over-fit
One trade against you is not evidence of much - the interviewer may be probing, or randomising deliberately to see whether you panic. Adjusting your market dramatically after a single fill is its own failure.
The judgement being tested is calibration: react to a pattern, not to noise.
What a strong performance looks like
You quote a reasoned market. You track your position aloud. You skew after fills, widen when uncertain, update on stated information, and at some point say "I'm at my risk limit, I'll only show a one-sided market now."
That last move is rarer than it should be and reads very well.
Practise with the make a market game, which trades against you adversarially.