PRACTICE GUIDE FIVE RINGS
Five Rings Market Making Practice Test
Five Rings does not publish the shape of its market making screen, and candidates describe it as 6 to 20 questions in 10 to 30 minutes, roughly one to three minutes per question, answered by typing the number, with no calculator.
Those are ranges across firms running this format rather than Five Rings's own figures, so treat them as the shape to train against and check the instruction screen on the day for the marking rule.
Outcry is not affiliated with Five Rings and has no access to their assessment content. This guide describes an assessment format that candidates report publicly; the questions here are generated by Outcry and are not Five Rings’s own.
What it screens
A proprietary trading firm in New York known for a heavily games- and puzzle-based interview style.
- ✓Setting a bid-ask spread that reflects your uncertainty
- ✓Updating quotes after a fill (adverse selection - the person who traded knows something)
- ✓Inventory management: skewing quotes to flatten a position
- ✓Hedging exposure instead of letting it build
Where it sits at Five Rings
A proprietary trading firm in New York known for a heavily games- and puzzle-based interview style. What that means for the screen is that the questions tend to be drawn from the work rather than from a textbook, so the format below is the shape to train against rather than a syllabus.
Candidates also report 3 other screens at Five Rings, covered separately on this site. Where a firm runs several, they usually sit in one round rather than spread across the process, so the pacing of the whole set matters more than any single section.
The format
Five Rings does not publish this screen's shape, and it varies between firms, so these are the ranges candidates report rather than exact figures.
| Questions | 6 to 20 |
|---|---|
| Time | 10 to 30 minutes |
| Per question | one to three minutes |
| Negative marking | No |
| Answer style | Typed price, spread or size |
| Where it sits | Later round, often live with a trader |
What it tests, with a worked example
Every example below is generated by Outcry, drawn from the same question generators the timed drills run. None of them is Five Rings’s.
Pricing under partial information
Half the board is hidden, and the quote has to price what you cannot see.
Example 1
HOW IT SCORES One of the 13 rows is drawn at random as the winning row. Every row is equally likely. A letter scores its own row number minus the winning row number, and a wager pays that score in dollars per unit. ROW LEFT RIGHT --------------------- 1 U F 2 T M 3 D A 4 H R 5 Q K 6 ? ? 7 ? ? 8 ? ? 9 ? ? 10 ? ? 11 L W 12 B G 13 P C Rows 6 to 10 are face down. Between them they hold E, I, J, N, O, S, V, X, Y, Z, but not in any stated order.
What is one unit of a wager on I worth, in dollars?
Answer 1
I is equally likely to be in any of rows 6 to 10, which average 8. The wager is worth 8 - 7 = 1.
Example 2
HOW IT SCORES One of the 13 rows is drawn at random as the winning row. Every row is equally likely. A letter scores its own row number minus the winning row number, and a wager pays that score in dollars per unit. ROW LEFT RIGHT --------------------- 1 N A 2 Y Q 3 V T 4 I W 5 R X 6 D Z 7 E U 8 H O 9 C M 10 J P 11 L G 12 K B 13 F S The board is written in a cipher. Every letter shown is the letter 3 places later in the alphabet than the real one, wrapping from Z to A.
What is one unit of a wager on D worth, in dollars?
Answer 4
D is written as G on the board, and G is in row 11. The wager is worth 11 - 7 = 4.
Example 3
HOW IT SCORES One of the 13 rows is drawn at random as the winning row. Every row is equally likely. A letter scores its own row number minus the winning row number, and a wager pays that score in dollars per unit. ROW LEFT RIGHT --------------------- 1 D M 2 F Y 3 B E 4 T A 5 ? ? 6 ? ? 7 ? ? 8 ? ? 9 O Q 10 K S 11 I R 12 C W 13 G X Rows 5 to 8 are face down. Between them they hold H, J, L, N, P, U, V, Z, but not in any stated order.
You hold 20 units of Z. What is the worst the position can score, in dollars?
Answer -160
The worst case stacks both unknowns against you: Z in row 5, the highest of the face-down rows, and row 13 winning. That is 5 - 13 = -8 a unit, or -160 over 20.
Adverse selection
Whoever trades with you may know something. Size and spread are the defence.
Example
HOW IT SCORES One of the 13 rows is drawn at random as the winning row. Every row is equally likely. A letter scores its own row number minus the winning row number, and a wager pays that score in dollars per unit. ROW LEFT RIGHT --------------------- 1 G J 2 X K 3 I C 4 W L 5 T O 6 V F 7 Y E 8 H S 9 N Q 10 U P 11 B D 12 A Z 13 M R A single-letter wager carries 3.74 dollars of standard deviation per unit, because the winning row is uniform on 1 to 13.
A counterparty offers you V at minus 1, with no fee either way. What do you do?
- Sell as much as the limit allows, because minus 1 is the fair price
- Buy as much as the limit allows, because minus 1 is the fair price
- Pass. The edge is zero and each unit still carries 3.74 of risk
- Buy a small amount, because a fair price is worth 1.87 a unit in option value
Answer Pass. The edge is zero and each unit still carries 3.74 of risk
V is worth 6 - 7 = -1, which is exactly what is being quoted. Trading at fair value pays nothing and still takes 3.74 of standard deviation a unit. Variance with no edge attached is a cost.
Option mechanics
Payoffs, parity and moneyness, at the speed a trading floor asks them.
Example
You sold a $35 call for $0.87. The stock finishes at $51. What is the profit per share? Losses are negative.
Answer -15.13
The short pays out max(51 - 35, 0) = $16.00 and keeps the $0.87: $0.87 - $16.00 = -$15.13. The best case is the premium and nothing more. The worst case has no floor, which is why a naked short call is a risk-limit question before it is a pricing question.
The Greeks
Delta, gamma, vega and theta as directions rather than formulas.
Example
You buy the at the money straddle on a $78 stock, 42 trading days out at 44% implied, to be long gamma. What is the bill for that?
- Theta - about $0.13 a share a day, which the realised moves have to beat.
- Nothing - gamma is free once the position is delta hedged.
- Vega - being long gamma means being short vega.
- Rho - the position has to be financed.
Answer Theta - about $0.13 a share a day, which the realised moves have to beat.
The straddle is worth about 0.8 x 0.44 x root(42/252) x 78 = $11.21, and value goes with root T, so one day costs about $0.13 a share. Long gamma and short theta are the same position seen from two sides: gamma pays 0.5 x gamma x (move)^2 on each rehedge, theta charges rent every night. Whether the trade wins comes down to realised vol against the 44% paid.
Updating on a fill
Being lifted is information. The next quote should not be the same as the last.
Sizing the trade
How much to do at your own price, which is a different question from what the price is.
Example
HOW IT SCORES One of the 13 rows is drawn at random as the winning row. Every row is equally likely. A letter scores its own row number minus the winning row number, and a wager pays that score in dollars per unit. ROW LEFT RIGHT --------------------- 1 L Y 2 D H 3 T R 4 B F 5 I U 6 E X 7 M K 8 Z S 9 G P 10 C J 11 O N 12 V A 13 W Q
A counterparty has already seen the winning row. You have not. They offer to sell you one unit of O at 0, and they make that offer only when selling is good for them. What is the expected profit in dollars if you buy?
Answer -1.5
Unconditionally O is worth 4, so 0 looks like 4 of edge. But they only offer when the score is below 0, which is 2 of the 13 rows: scores -1, -2, averaging -1.5. The trade you actually get is worth -1.5 - 0 = -1.5. The offer itself is the information.
What a good score looks like
There is no score to report on most of these. Market-making rounds are judged on the reasoning you narrate as much as the number you land on, which is why candidates describe them as the hardest round to prepare for and the easiest to improve at.
How to train for it
- 01Get fast on fair value first. You cannot quote around a number you are still computing.
- 02Practise saying the spread out loud with a reason attached. Width without a reason reads as guessing.
- 03Play a round where you get filled and have to re-quote. The update is what the round is actually testing.
TRAIN IT HERE
The drills that match each section
Market Maker
Quote spreads, take fills, and manage inventory against informed flow.
Poker Market Making
Make a market on the sum of card ranks and requote as each card is revealed.
Basket Arbitrage
Spot mispricings between a basket and its components before they close.
Delta Defender
Keep a book hedged as the underlying moves - free to play.
SIT THE FULL BATTERY
All the sections back to back on one clock, marked the way the real screen marks them, with a by-skill breakdown at the end. Included with any pass.
Also reported at Five Rings
Common questions
- Is the Five Rings market making test multiple choice?
- Reported as typed price, spread or size. Formats move, so treat this as the shape rather than a guarantee.
- How long is the Five Rings market making test?
- Candidates report 6 to 20 questions in 10 to 30 minutes, roughly one to three minutes per question.
- Is there negative marking on the Five Rings market making test?
- No. A wrong answer costs nothing beyond the mark you would have earned, so leaving an item blank is never better than guessing at it.
- How do I practise for it free?
- Every drill linked on this page is free to play, with no account, inside a daily run cap. Questions are generated fresh each run, so there is nothing to memorise between attempts.