Series 34 cheat sheet

Quote convention BASE/QUOTE: EUR/USD at 1.0850 means one euro costs 1.0850 U.S. dollars; the base is the unit being priced and the quote is the pricing currency.

Pip = 0.0001 for most pairs and 0.01 for yen-quoted pairs; a standard lot is 100,000 units of the base currency, a mini lot 10,000, and a micro lot 1,000.

Pip value in USD on one standard lot of a USD-quoted pair is $10; for USD/JPY it equals (0.01 divided by the USD/JPY rate) times 100,000 units.

Spot currency transactions conventionally settle two business days after trade date (T+2); retail accounts generally roll or close positions instead of taking delivery.

Bid is the price at which the dealer buys the base currency from the customer; ask is the price at which the dealer sells it; spread = ask minus bid and is a transaction cost to the customer.

Rollover/swap is the daily interest differential between the two currencies: long the higher-yielding currency earns positive carry, short pays it.

Cross rates such as EUR/JPY are derived from the component dollar pairs; forward points reflect the interest-rate differential between the two currencies (covered interest parity).

The market is decentralized and continuous over the counter, running through the Sydney, Tokyo, London, and New York sessions; participants include banks, central banks, funds, corporates, and retail dealers.

Leverage = notional position value divided by the security deposit; a 2% deposit equals 50:1 leverage and a 5% deposit equals 20:1.

Commodity Exchange Act Section 2(c)(2)(B), as amended by Dodd-Frank, permits retail off-exchange forex only with a regulated entity or with an eligible contract participant.

Retail Foreign Exchange Dealers register with the CFTC and must be NFA members; forex dealers organized as broker-dealers register with FINRA as Forex Dealer Members (FDMs).

Firm registration runs through Form BD on Web CRD and individual registration through Form U4; associated persons of an FDM who solicit or execute retail forex must pass the Series 34 exam.

Before an account is opened the firm must deliver the CFTC risk disclosure statement; the customer signs an acknowledgment and the firm retains it as a required record.

Recordkeeping under CFTC Regulation 1.31 (incorporated for forex by Regulation 5.18): records are kept five years, with the first two years readily accessible.

RFED minimum adjusted net capital is $20 million; monthly financial reports go to the CFTC/NFA and annual financial statements must be audited.

NFA Compliance Rule 2-43 bars adjusting executed prices (except a customer-requested change in the customer's favor), requires first-in first-out offset of customer orders, and prohibits simultaneous long and short positions in one account.

Promotional material must be fair and balanced with risk disclosure under NFA Rule 2-29; FINRA Rule 2210 governs member retail communications.

Customer funds must be segregated in accounts designated as customer funds, may not be commingled with firm money, and are not protected by SIPC.

Account opening captures identity, address, employment, investment experience, and financial condition; CIP/BSA identity verification and OFAC screening are completed before trading.

Required security deposit is 2% of notional value for major currency pairs (maximum 50:1 leverage) and 5% for non-major pairs (maximum 20:1); the deposit is a good-faith performance deposit, not a down payment or loan.

If equity falls below the required deposit, the firm must call for additional funds and liquidate positions as needed; extending credit to satisfy a deposit requirement is prohibited.

Discretionary trading requires a written power of attorney plus approval by a designated principal, and discretion cannot be exercised orally or implied from conduct.

Each execution requires a confirmation showing trade date and time, currency pair, amount, execution price, and any commission or markup; accounts with open positions receive periodic statements.

Unrealized gains and losses are marked to market and normally settled in cash at rollover, producing variation margin.

An FDM must maintain required net capital, notify FINRA if capital falls below the minimum, and file audited annual financial statements.

Retail communications require registered-principal approval, fair and balanced content, and three-year retention under FINRA Rules 2210 and 4511.

Suitability under FINRA Rule 2111 requires reasonable-basis, customer-specific, and quantitative suitability; NFA Compliance Rule 2-30 requires customer information and reasonable grounds for the recommendation.

Know-your-customer under FINRA Rule 2090 requires reasonable diligence to learn each customer's essential facts.

Prohibited sales conduct includes guaranteeing profits or protection from loss, misleading performance claims, and presenting hypothetical results as if they were actual.

Prohibited conduct includes churning, unauthorized trading, front running, trading ahead, insider trading, and manipulating prices or quotes.

Cold calling must comply with FINRA Rule 3230 and the FTC Telemarketing Sales Rule: calls only between 8 a.m. and 9 p.m. local time and no calls to registered do-not-call numbers.

Borrowing money from customers, sharing in customer accounts, and private securities transactions are restricted and require written notice or approval.

Supervision under FINRA Rule 3110 requires written supervisory procedures, a designated principal, an annual compliance meeting, and ongoing review of correspondence and trading.

The supervisory control system under FINRA Rule 3120 must be tested and reported annually to senior management; offices are inspected under Rule 3110(c) on a prescribed cycle.

Continuing education: registered persons complete the Regulatory Element annually and the firm delivers an annual Firm Element needs analysis and training plan.