They Ask for Size on Your Market

The scenario: you're making a two-sided market — say $100.00 bid, $100.10 offer — and a counterparty asks, "how big can you go at that price?" This is a standard trading-interview scenario because the question itself is informative, and how you respond reveals whether you understand why.

Why the question is a signal before you've even answered

A counterparty who's happy trading a normal, retail-sized amount usually just trades — they don't ask about size first. Asking "how big" before trading is itself weak evidence that they want to trade a large amount, and size is exactly the dimension along which adverse selection risk grows: a counterparty who wants to move a large quantity at your posted price either has a genuine liquidity need (uninformed, fine for you) or has private information suggesting the price is about to move against you (informed, costly for you) — and you generally can't tell which from the question alone. The correct instinct is not to treat "how big" as a neutral logistics question; it's a request that should make you more cautious about your quoted price, not less.

Working through the reasoning

Suppose your quoted $100.00/$100.10 market reflects your fair value estimate of $100.05 with a spread sized for typical (small) flow. If someone wants 50x your normal size, ask yourself: what would make someone want to trade 50x normal size at exactly this price? Either they have a large, price-insensitive need (a fund rebalancing, a hedger closing out risk) or they have information you don't. Because you can't distinguish the two with certainty, the standard response is to quote a worse price for the larger size — a wider effective spread, or a price adjusted away from your midpoint in the direction the size implies risk to you — rather than mechanically extending your existing quote to any quantity.

Worked example: your $100.00/$100.10 market is sized for 100 shares. Someone asks for your price on 5,000 shares. You reason: if this is uninformed rebalancing flow, a modest size markup, say $99.90/$100.20 for that quantity, still likely gets you filled and compensates for the extra inventory risk of holding 5,000 shares before you can offload them. If this trader actually knows something you don't, no finite markup fully protects you, but a wider price at least reduces your expected loss per trade compared to filling 5,000 shares at your original small-size price, and it also discourages purely informed traders who only wanted a favorable price, not a fair one. You quote the wider price for size, rather than either refusing to answer or blindly extending your original two-sided market to the full requested quantity.

What this means in practice

Real market makers size their quotes explicitly — a small displayed size at a tight spread, with worse prices available for anyone who wants more — for exactly this reason, and most exchange and OTC quoting conventions build in this size-dependent pricing rather than treating it as an edge case. In an interview, the strongest answer names the mechanism (size requests correlate with information and inventory risk) rather than just stating the rule (widen for size) as a memorized fact.