Proprietary Trading Firms – Interview Questions and Preparation Tips
A common question from prospective proprietary traders preparing to make an impression at their interview for a trading vacancy is "What interview questions will I be asked?", "How will the interview process be conducted?" and "How best can I prepare for my interview?".
Every proprietary trading firm will have its own unique recruitment process, and these will often be modified frequently as firms adapt and update their techniques. It is therefore impossible to give anything more than general guidance as to the interview process and what may be involved. However, the following article may help in giving pointers as to what you may be asked, and how you can best prepare yourself for interviewing.
Research the company and your interviewer (if known), find out what their markets are (stocks, options, futures or multi-asset) and how they trade (market maker, spreads, pairs, algorithmic, flow trading, etc). Check the job description carefully. Search the internet for prior discussions or comments on forums about the firm or position.
If you do not prepare carefully and thoroughly for the interview, why should the interviewer assume you will prepare properly for each trading day?
Make sure you know the products and exchanges such as fixed income or STIRS, Eurex and LIFFE. Read up on relevant tick sizes, value of contracts, rollover dates, volatility of contracts and product specifications.
Some companies do this, some don't, but be prepared for the first round of interviewing to be done as a group. This is an easy way for a proprietary trading company to get a largish number of their most interesting applicants into their office en-mass, and to narrow down which of these applicants they are interested in speaking to one on one.
In a typical group interview, a recruiter (or two) will introduce the company and their opportunity. They will run through a short presentation, and then they will ask the candidates, one-by-one to stand up and move to the front of the room to make an introduction. You should talk about yourself, why you want to do trading and why with their company, etc. You should tailor your introduction to address what you think the company is looking for based on the job description and your earlier research.
The group interview will possibly include some sort of reflex or cognitive testing; you may be required to do some of this on a PC. Quite likely they will also include some basic numeracy test too - these will not normally be exceptionally difficult tests, but a time limit will be imposed.
The whole process is usually crafted to help the prop firm recruiters identify and single out which of the grouped candidates display the characteristics the firm considers desirable. For example, trading requires confidence and composure, as well as effective communication with trainers and other traders especially if you go on to work in a team. The aptitude or maths tests will demonstrate whether you can retain your focus and accuracy whilst under pressure and in a competing environment against the other candidates.
Individual Interviews - Question types
Interview questions fall into category types, such as open or closed questions or behavioural questions, designed to elicit or provoke specific responses from inteviewees. It is useful if you understand the types of questions you may be asked, so that you can mentally prepare for how you can handle your responses in these question scenarios.
Behavioural questions - predicts future behaviour based on your past experiences
You should have ready examples of how your prior experiences have allowed you to develop specific skills required for the job, and explain the benefit to the firm.
STAR: Situation, Tasks, Action, Result
Open questions - " Tell us about........"
Keep in mind the skills likely to be required as a trader, and tailor your response around the job description, selection criteria and your strengths.
Closed questions - Used when the interviewer wants information of a specific factual or technical nature, these sort of questions can often be answered with a "yes" or "no"
They interviewer will be seeking clarification and elaboration of past experiences or will require you to demonstrate your knowledge in some subject area.
Hypothetical questions - "What would you do..." "How would you handle..."
These questions are designed to assess your mental agility, the ability to think on your feet.
Leading questions - The answer seems obvious...
"As a trainee trader you will require good communication abilities - do you have good skills in this area?" Do not give a simple yes or no answer. Always give examples to support your response.
Combination or sequential questions - two or more questions phrased together, on the same topic
Don't be afraid to ask for the question to be repeated if you can't recall parts of the full question during your response.
Use the 'STAR' method for answering interview questions
S: Situation - describe the scenario
T: Task or problem - what problem did you face?
A: Action - what action or decision did you take?
R: Result - what was the result or outcome of your action?
Common interview questions
Following are a list of some of the most commonly asked proprietary trading interview questions, and an indication of what the firm might be looking for in a response.
Tell me about yourself
The single most commonly asked question in all interviews, though it often catches the unprepared off guard. You need to have a short statement prepared in your mind. Be careful that what you say does not sound overly rehearsed. Limit your reply to trading-related or professional information unless instructed otherwise. Talk about things you have done and jobs you have held that are related to, or could contribute in some way to your suitability for the trading position you are interviewing for. Start with the things farthest back and work up to the present.
Why do you want to be a trader?
Explain how long has it been your desire and describe the steps you have taken to achieve your goal. If you have traded already this is a great opportunity to demonstrate real-world proof of your interest in trading by producing your account statements and PnL metrics. The firm will be for the desire to make money, and useful skills that you have already got from other areas. You should also demonstrate an understanding of the requirements of the job, and have longer term goals. They are not looking for people who are want a "glamorous" job, who have no appreciation for the hard work involved, or for people going into trading because they were unable to get into their chosen field; ie, an Investment Bank.
Do you consider yourself a risk taker?
You should answer this honestly, and be prepared to back your answer up with behavioural examples. If YES, give an example of a risk you took; Why do you consider that to be a risk? Do you enjoy taking risks? If NO, explain why; be prepared to describe what you consider to be a risk, and how you react to others who do take risks. The firm will likely be looking for people who know the difference between a calculated risk and recklessness, who consider the risk before hand and who enjoy the challenge of calculated risk taking. They will not be looking for people who enjoy risk taking purely for the adrenalin rush, or who cannot distinguish between risk taking and foolishness.
What do you know about this organization?
This question is one reason to do some research on the organization before the interview. Explain in short what you know about the firm, where they have been and where they are going. What are the current issues and who are the major players in the firm, what their markets and exchanges are and how they trade. Do not be afraid to phone in to reception beforehand and speak to someone when doing your research to try to get enough information.
Why do you want to work/trade with this company?
This may take some preparatory thought and again should be based on the prior research you have done on the prop group. Sincerity is quite important here and will easily be sensed. Relate your response to your long-term career goals - which should of course be linked to the trading opportunity you have applied for.
What have you done to improve your knowledge or skills in the last year?
Try to include self-improvement activities that relate to the specific opportunity. A wide variety of activities can be mentioned as positive personal improvement, and could include sports or performance activities. Have some good ones you think the firm would value ready to mention. Talk about what and how did you learn, how long did it take, are you still learning or perfecting? The prop firm will be looking for people who can explain why they wanted to learn, who understand that learning takes time. They will of course want people who put in considerable effort to learn something new and who realise that there will always be something new to learn.
They will not looking for people who show no perseverance, or who think a two day typing course is a good example.
Why should we hire you to trade for us?
Point out how your personal strengths and assets meet what the company needs. Ultimately, the company is looking for someone who will make money for them, so you should structure your reply in such a way that this result is your mutual objective and explain how you intend to accomplish that for them. Do not mention any other candidates to make negative comparisons.
Do you consider yourself successful?
You should always answer yes to this sort of question, and in short explain why. A good answer should include some personal goals that you have set, and explain which ones that you have met some and how you are on track to achieve the others.
What is your greatest strength?
Numerous answers are good, just stay positive. A few good examples: Your understanding of technical analysis, your analytical or problem-solving skills, Your ability to stay focused and work under pressure, your positive attitude, your persistence.
What has been your biggest disappointment?
Try to keep your response to a professional scenario. Endeavour to refer to something that was beyond your control. Show acceptance of the situation and no negative feelings. Explain why you think this happened, what steps have you taken to overcome this. How successful have these steps been, and most importantly, what have you learnt or taken from the situation that has led to personal improvement. The company are likely to be looking for people who can accept their part in a failure and who take some form of action to try to overcome failure or at least learn from it. They want people who accept that they will have failures, particularly in trading since losing trades are part of any traders activity.
They will not looking for people who think they are perfect, who don't accept their part or attempt to blame others, or people who get hung up about failure.
Describe a situation that required an unusual amount of hard work under pressure.
You could say that you thrive or enjoy certain types of pressure or that you perform at your best when in a stressful situation. Give an example that relates to a trading environment. Talk about whether the hard work in your example was justified, and you tried to relieve the stress, and if it was all worth it in the end. The firm would be looking for people who understand that success takes sustained hard work, and who can cope with and relieve stress. They will not be looking for people who think that success comes easily or who get bogged down by stress.
Are you willing to put the interests of the company before your own?
This is a direct loyalty and commitment question. Do not worry about any ethical and philosophical implications. Just answer yes.
How do you expect to counteract your lack of experience?
Firstly, if you have relevant trading or market experience the interviewer is not aware of yet, bring it up here: Then, point out (if correct) that you are a fast learner and will work hard.
Do you have any questions for me?
Always have questions prepared, even if you think you already know a lot about the opportunity or company from your prior research, as this will show that you are interested. Prepare your questions in such a way where you will be an asset to the organization are beneficial. "How soon will I be able to begin trading?" "What is the earliest I can get onto the trading floor each day?" "What types of strategies will I be able learn?" are examples.
Technical or Product related questions
Technical questions are something you should expect of almost every proprietary trading interview. While the area of speciality, market type and level of difficulty of these questions vary widely from firm to firm, you will undoubtedly be asked technical questions in at least one round of your interviewing.
Again, careful research about the firms activities and markets, and the trading role you have applied for may give you valuable pointers about areas of speciality that you should brush up on beforehand. Accurate and detailed responses will be what will most likely impress your interviewer and help improve your chances to land the job. In this the most competitive industry, it is important for you to gain any edge over other candidates that you can. If you put in the time to prepare, this can help give you that edge.
Some example Product related Interview Questions
Graph the price-yield relationship of bonds.
What is convexity?
What is an inverted yield curve?
The following are prices of four different bonds: 25, 23, 22, 24. Assuming that you can sell or buy these bonds at no cost, if you know that tomorrow, three of them will go to 0 and one of them, 100, how would you arbitrage?
How would you explain credit spread?
If the yen/dollar exchange rate is 100 yen/$ today and the one year forward rate is 105 yen/$, what does this imply?
What is the yen/dollar exchange rate today? Where do you think it will be in one year and why?
If an exporting company wants to pay no more than 110 yen to a dollar and no less than 90 yen to a dollar in 3 months, how would you use option instruments to hedge their position?
Would a price of a call option go up or down when the maturity of the option is longer?
Brain teasers & Problem Solving
It would pointless for us to include a huge library of possible interview problems or brain teasers in this article, you have Google available if you really want to find examples, but we suggest you research the Monty Hall probability puzzle, as variants of this paradox are fairly commonly asked in interviews
Interviewees should understand that some puzzles may not have an obvious solution, or pose some sort of paradox that has no right answer. The right answer in these situations is simply to demonstrate your reasoning as you work it out, and show that you won't panic.
Monty Hall style question:
You are on a game show, behind one of the doors is $1000. Behind the other 2 is nothing. You pick a door. The host, opens one of the other doors revealing that it's empty. He now gives you a chance to switch to the remaining closed door, or keep your original choice. Would you switch? What would you pay to switch?
Or another on similar lines...
I have two envelopes. One contains twice the amount of the other. I give you one of the envelopes. Should you switch?
Maths, Aptitude, Psychometric and Personality Profiling tests
Last of all, but not least - be prepared for some kind of mathematical tests at some stage during your interview process, particularly if the proprietary trading firm you are interviewing with is involved in market making, calendar spreads trading or options trading.
Although most trading platforms perform important calculations on ratios and implied prices automatically for you, the firm will expect you to have good math skills in any case, as they will want to be sure you understand what and how you are trading as they train you in their strategy.
A maths test is a reasonable measure of mental agility and you should expect, at the very least, a test involving numeracy, subtraction, multiplication and/or division of large numbers and fractions. If the firm you are testing with is quantitative or involved in options market making, expect the math testing to be difficult. The test will be timed to add of time pressure and stress into the equation.
More rigorous testing could include psychometric profiling. If you have never done a psychometric test, you should perform an internet search on the phrase and try some of the free tests that show up in your search. Although it is possible to improve your scores in these sort of tests by being familiar with what is involved, unfortunately, it is impossible to know exactly what the firm conducting the test is trying to profile you for. Just relax, and answer the questions honestly and as consistently as you can.