trader interview questions shared by candidates
If you could play a game just once with two choices: take $1 or have a 1/10 chance of getting $10, what would you choose? How about $1 vs 1/10 chance of $15? How about $10000 vs 1/10 chance of $100k?
think about what a day trader/scalper does all day in order to stay consistently profitable?
It's about the expected value of probability outcomes. There are two ways of answering this: if you do this operation once, you'd better take the cash being offered; if you're repeating the operation over and over, you'd better go with the probability option. 1. $1 = 1/10 * $10 --> indifferent, go with the cash 2. $1 go with the chance 3. $10,000 = 1/10 * $100,000 --> indifferent, go with the cash
i disagree with D:, it's more about risk-aversion. Basically, when the averages are the same one has to go for smaller \sigma. Indeed 1 and 3 are answered correctly be D:. 2 depends on your personal risk-aversion preferences, because the game is played only ONCE. I would still go for 1 dollar based on my personal preferences. Of course, if one repeats the game many times, then just go for better averages as D:. However, there is a psychological way to explain a choice of 100k$ with prob 1/10. Suppose you really really want to buy a ferrari right now to impress a future girlfriend. 10k$ wouldn't make a difference, but 100$k would do a job and change you life. So you don't care if you have 10k$ more or less but you care about 100k$ . This is one of the reasons why we had so much trouble in finance in the last years.