Your question is Account for Costs in Simulations. Take a moment with it on the right.
Talk me through your thinking if you like. When you're confident, submit your answer and I'll grade it like a real screen (7/10 or better passes).
Tell me how you account for transaction costs and market impact in your simulations.
Explain how you represent explicit costs, execution uncertainty, and the price impact caused by trading size. Discuss how you would prevent lookahead bias, calibrate the assumptions, and validate that the simulation is not overstating strategy performance.
The interviewer is checking whether you distinguish commissions and fees from spread, slippage, and endogenous market impact. Address both the implementation mechanics and the limitations of the model.