Series 31 common mistakes
Series 31 · Understand the traps and how to avoid them.
Selecting maintenance margin as the amount that must be deposited to open a new futures position.
Initial and maintenance margin sound interchangeable, so candidates memorize one number instead of the sequence in which each applies.
What to do instead
Use a two-step rule: initial margin is required at initiation; maintenance margin is the minimum equity threshold after the position exists; a margin call restores equity to the initial level. Practice with one long and one short example.
Assuming a long futures position can be held through the last trading day without considering first notice day or delivery notice.
Candidates collapse last trading day and notice day into a single date and ignore who may be assigned delivery.
What to do instead
Build a contract timeline for each market: first notice day, last trading day, and delivery period. Identify whether the contract is physically delivered or cash settled and who may receive notice.
Describing an option seller as paying the premium and having a right rather than an obligation.
Everyday insurance language and stock-trading habits invert the buyer and seller roles in options.
What to do instead
Memorize the buyer/seller matrix: the buyer pays premium and has a right; the seller receives premium and has an obligation; writer means seller.
Computing call breakeven as strike minus premium, or put breakeven as strike plus premium.
The formulas are mirror images, and candidates memorize one sign pattern instead of deriving it from the payoff.
What to do instead
Derive from expiration profit and loss: call breakeven equals strike plus premium; put breakeven equals strike minus premium. Verify with a quick profit-and-loss value at expiration.
Treating premium received from a short option as spendable equity and ignoring the margin requirement.
Cash-account intuition says received cash is available, but short options require margin and the premium is not free cash.
What to do instead
Separate premium credit from margin equity. Compute the short-option margin requirement using the applicable formula and confirm the premium cannot be withdrawn as free funds.
Labeling every person who trades customer funds as a CTA and every pooled vehicle as a CPO without checking the regulatory definitions.
The acronyms are taught together and sound like job titles rather than defined regulatory roles.
What to do instead
Use a definition checklist: a CTA advises on commodity interests for compensation; a CPO operates a commodity pool. Then check registration and exemption conditions separately for each role.
Applying the securities accredited-investor test to a commodity pool exemption that uses a different investor standard.
Candidates carry over Securities Act concepts into CFTC and NFA pool rules because both involve private offerings.
What to do instead
Keep a two-column table comparing securities exemptions with CFTC/NFA pool exemptions. Match each investor standard to its source rule before selecting an answer.
Assuming a CPO or CTA may use hypothetical performance in sales material as long as the word hypothetical appears somewhere in the document.
A label feels sufficient, but hypothetical performance has specific conditions, disclaimers, and possible filing or prohibition rules.
What to do instead
Use a promotional review checklist: identify hypothetical versus actual performance, confirm required disclaimers, and determine whether the material must be filed or is prohibited. Do not rely on a single label.
Treating a customer's oral assurance of understanding risk as satisfying written risk disclosure and suitability documentation.
A conversation feels like evidence, but compliance testing focuses on required records, signed acknowledgments, and documented suitability information.
What to do instead
For each account opening or pool sale, trace the required disclosure document, signed acknowledgment, and suitability information. If any required element is missing, treat the answer as deficient.
Answering a promotional-materials question by focusing only on whether the statement is true and ignoring the specific prohibitions on guaranteeing profits or misleading testimonials.
Candidates apply a general honesty rule instead of the enumerated prohibited practices tested in the regulatory domain.
What to do instead
Memorize the prohibited-practice list and test each advertisement against every item: profit guarantees, misleading claims, testimonials without required disclosures, and unsubstantiated performance claims.