Execution & Algorithms interview questions

Execution algorithms, smart order routing, and transaction-cost analysis.

3 questions in Capital Markets.

Capital MarketsA 19-minute read on how the topic fits together, before the questions.Capital markets fundamentals59 short answers on one page, for revising rather than studying.

hard3

hardScenarioDesign

Your algorithm is a third of the way through a large sell order and the liquidity on the other side disappears. What should it do?

Establish first whether the book is genuinely empty or your market data has gone stale, then stop making the problem worse: your own prints are feeding the volume measure you throttle against. The correct behaviour is to pause against a price constraint and escalate, because leaving a residual unfilled is a decision the trader owns.

6 minsenior, staff, lead

hardConceptDesignScenario

How does your order placement change on a venue that allocates pro rata within a price level instead of first in, first out?

Queue position stops being worth anything and displayed size becomes the thing that earns fills, so you quote larger than your true intention, reprice freely because there is no queue to lose, and cap total displayed size against real risk appetite because a single large aggressor can fill all of it.

6 minmid, senior, staff

hardConceptDesign

What is an execution algorithm trying to optimise, and how would you tell whether it did a good job?

An execution algorithm trades off market impact against timing risk while working an order towards a stated benchmark, so it is optimising cost relative to that benchmark rather than price. Transaction-cost analysis judges it by decomposing slippage from the benchmark and comparing like flow with like.

6 minmid, senior, staff