Series 3 study guide
Series 3 · Work through your exam, one topic at a time.
The Series 3 - formally the National Commodities Futures Examination - is the proficiency exam for individuals who intend to solicit or accept orders for commodity futures contracts and options on futures. It is a National Futures Association exam administered by FINRA, so the NFA owns the proficiency requirement while FINRA handles enrollment, scheduling and test delivery. The Series 3 study guide has 10 sections and about 2,656 words.
01Futures Trading Theory and Basic Functions/Terminology
A futures contract is a standardized, exchange-traded agreement to buy or sell a specified quantity of a commodity or financial instrument at a future date. The exchange standardizes contract size, quality, delivery months, and tick size; the clearinghouse becomes the counterparty to every trade through novation.
260 words, about 1 min02U.S. Futures Markets
futures trading occurs on designated contract markets (DCMs), such as venues within CME Group and ICE. The Commodity Futures Trading Commission (CFTC) is the federal regulator created by the Commodity Exchange Act.
246 words, about 1 min03Hedging with Futures
A hedge uses futures to offset price risk in a cash position. A producer or holder of inventory uses a short hedge to protect against falling prices.
298 words, about 1 min04Speculating with Futures
Speculators accept price risk in pursuit of profit and provide liquidity to hedgers. A long speculator buys expecting prices to rise; a short speculator sells expecting prices to fall.
258 words, about 1 min05Options on Futures
An option on a futures contract gives the buyer a right, not an obligation, to establish a futures position at the strike price. A call buyer gains from rising futures prices; a put buyer gains from falling prices.
319 words, about 2 min06Fundamental and Technical Analysis
Fundamental analysis studies supply and demand: production, inventories, exports, consumption, weather, government reports, and macroeconomic conditions. It seeks to explain why a price should move.
283 words, about 1 min07Customer Accounts
Firms must know their customers, obtain required information, provide risk disclosure, and maintain records. Account types include individual, joint, corporate, partnership, trust, estate, omnibus, guaranteed, and managed accounts.
237 words, about 1 min08Margin
Futures margin is a good-faith performance bond, not a loan. Initial margin is required to open a position; maintenance margin is the minimum equity level that must be maintained.
249 words, about 1 min09Operations and Trading Procedures
A market order seeks immediate execution at the best available price. A limit order sets a maximum buy price or minimum sell price and may not fill.
279 words, about 1 min10Rules and Regulations
The Commodity Exchange Act governs futures trading, and the CFTC administers it. The NFA enforces membership and sales-practice rules.
227 words, about 1 min