NFA Series 3 Practice Test & Mock Exam

NFA Series 3 rewards candidates who can understand commodity futures and options market mechanics, connect customer objectives to the right strategy, and handle the regulatory workflow cleanly. If you are searching for Series 3 sample questions, a practice test, mock exam, or simulator, this is the main Securities Prep page to start on web and continue on iOS or Android with the same account. This page includes 24 sample questions with detailed explanations so you can try the exam style before opening the full app question bank.

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What this Series 3 practice page gives you

• a direct route into the Securities Prep simulator for Series 3
• targeted practice around futures, options on futures, hedging, speculation, and account mechanics
• detailed explanations that show why the strongest market or compliance answer is the most defensible
• a clear free-preview path before you subscribe
• the same subscription across web and mobile

Series 3 exam snapshot

• Provider: NFA
• Exam: National Commodity Futures Examination
• Current training reference: 120 questions in 150 minutes
• Registration context: futures and commodity-focused representative qualification path

Topic coverage for Series 3 practice

• Market structure and products: futures, options on futures, and contract mechanics
• Strategy and customer fit: hedging, speculation, margin, and customer-account decisions
• Rules and workflow: regulatory obligations, documentation, and compliant next-step processing

How to use the Series 3 simulator efficiently

1. Start with market-structure and strategy drills so the futures workflow becomes automatic.
2. Review every miss until you can explain the instrument, the objective, and the compliance consequence in one chain.
3. Move into mixed sets once you can switch between product, strategy, and rule questions without hesitation.
4. Finish with timed runs so the 150-minute pace feels controlled.

Free preview vs premium

• Free preview: 24 public sample questions on this page plus the web app entry so you can validate the question style and explanation depth.
• Premium: the full Series 3 practice bank, focused drills, mixed sets, timed mock exams, detailed explanations, and progress tracking across web and mobile.

Current sample-question status

• Live now: this exact bank is available in Securities Prep on web, iOS, and Android.
• Current page sample set: this page includes 24 questions drawn from the current practice set.
• Full app: open the Securities Prep web app or mobile app for broader timed coverage.

Focused sample questions

Use these focused Series 3 sample-question pages when you want to isolate one official topic area before returning to the mixed simulator.

• Futures Markets Sample Questions
• Margin and Orders Sample Questions
• Hedging and Options Sample Questions
• Futures Regulations Sample Questions
• Free Series 3 Full-Length Practice Exam

24 Series 3 sample questions with detailed explanations

These sample questions cover multiple blueprint areas for Series 3. Use them to check your readiness here, then move into the full Securities Prep question bank for broader timed coverage.

Question 1

Topic: Part 1B - Margin, Settlement, Orders, and Price Analysis

A customer at an FCM calls after receiving a margin call. The customer is long 10 July WTI crude oil futures and short 10 August WTI crude oil futures in the same account (a calendar spread).

The exchange publishes reduced spread margin for recognized calendar spreads because the long and short legs partially offset price risk. Hedge margin is available only when the account is designated and supported as a bona fide hedge.

Exhibit: Margin notice (USD)

Positions:
- Buy 10 Jul WTI
- Sell 10 Aug WTI

Margin charged (system treated as 2 outrights):
- Jul WTI IM: 10 x $9,000 = $90,000
- Aug WTI IM: 10 x $9,000 = $90,000
Total IM: $180,000

Exchange calendar spread margin (if booked as spread):
- Jul/Aug WTI spread: 10 x $2,500 = $25,000

As the AP handling the call, what is the best next step?

• A. Rebook the position as a recognized spread and recompute margin
• B. Immediately liquidate one leg to eliminate the margin deficit
• C. Demand cash-market hedge documentation to apply hedge margin
• D. Issue the full margin call first, then review spread treatment later

Best answer: A

Explanation: Because the customer holds offsetting futures in a recognized calendar spread, the firm should ensure the position is margined using spread margin rather than as two separate outright positions. Spread margin is often lower because gains in one leg tend to offset losses in the other, reducing the account’s net risk. Hedge margin would require a bona fide hedge designation and supporting documentation, which is a different determination.

Question 2

Topic: Part 2 - Regulations (CFTC/NFA), Compliance, and Disclosures

An introducing broker (IB) is deciding whether to enter a new carrying agreement with an FCM. The IB’s main objective is to protect customer funds by ensuring the FCM remains financially sound, but the IB is also under time pressure to launch the relationship next week.

During due diligence, the FCM provides an audited annual statement that is 10 months old and says its most recent monthly internal financial package “will be available in a few weeks.”

For this setup, what is the primary risk of proceeding without more current financial reporting?

• A. Increased risk of physical delivery assignment on expiring futures
• B. Greater exposure to exchange-imposed daily price limit moves
• C. Higher likelihood of unauthorized discretionary trading in customer accounts
• D. Reduced ability to detect a weakening capital or segregation position early

Best answer: D

Explanation: Financial reports are used as a high-level tool to monitor a firm’s financial condition and its ability to meet obligations, including protecting customer funds. If the only information is stale, supervisors and counterparties have less visibility into deteriorating net worth, liquidity strains, or segregation issues. Timely reporting matters because it enables earlier intervention before problems become customer-harm events.

Question 3

Topic: Part 1C - Hedging, Spreads, Speculation, and Options Strategies

A retail customer at an introducing broker says: “A drought is likely to reduce the U.S. corn crop over the next two months. I want to speculate on higher corn prices, but I want my worst-case loss clearly limited to a known amount.” An AP is preparing a trade recommendation and accompanying communication for the customer.

Which action best aligns with the customer’s objective and durable just-and-equitable communication principles?

• A. Sell an uncovered corn call to profit from time decay
• B. Buy an at-the-money corn call and disclose max loss is premium
• C. Buy a corn futures contract and emphasize the low margin deposit
• D. Buy a corn calendar spread and describe it as “low risk”

Best answer: B

Explanation: The customer wants bullish exposure with a clearly defined maximum loss. Buying a call option on corn futures provides upside participation while limiting worst-case loss to the premium paid (plus transaction costs). Fair communications require presenting this risk/benefit clearly and avoiding leverage-based sales emphasis or “low-risk” characterizations.

Question 4

Topic: Part 2 - Regulations (CFTC/NFA), Compliance, and Disclosures

A retail customer at an FCM tells an associated person (AP) she will be overseas for two months and wants the AP to “trade my futures account as you see fit so I don’t miss opportunities.” The only documentation so far is an email from the customer repeating that request; there is no written discretionary authorization (power of attorney) on file and no evidence a supervisor has accepted the arrangement.

To meet the customer’s objective, what primary risk/limitation must the firm address first?

• A. The customer may have difficulty exiting illiquid contracts
• B. The customer may be assigned delivery if not offset
• C. The account could face margin calls due to leverage
• D. Trading would be unauthorized without written discretion approval

Best answer: D

Explanation: The customer is requesting ongoing discretionary trading, not a single order with limited “time and price” discretion. Before the AP can place trades without obtaining customer-specific instructions each time, the firm must have proper written discretionary authorization and internal acceptance/supervision. Without those controls, the trades are likely to be viewed as unauthorized and abusive discretion risk increases.

Question 5

Topic: Part 2 - Regulations (CFTC/NFA), Compliance, and Disclosures

An FCM’s surveillance system aggregates futures positions by beneficial owner across all accounts and triggers an alert when a customer reaches 85% of an exchange’s large-trader reporting level.

A customer is currently long 170 contracts in the same futures month and enters an order to buy 40 more. The exchange’s large-trader reporting level is 200 contracts net long.

Under the FCM’s controls, what is the best next step?

• A. File a large-trader report with the CFTC before the order executes
• B. Notify compliance/risk and validate aggregated exposure before accepting more orders
• C. Reclassify the position as a hedge to avoid large-trader monitoring
• D. Reject the order until the customer signs a new risk disclosure

Best answer: B

Explanation: Large-trader controls are designed to flag and escalate potential threshold events before they occur. When an account is approaching a reporting level, the proper workflow is to escalate to compliance/risk and confirm the firm’s aggregated exposure for that beneficial owner (including related accounts) before allowing additional orders that could push the customer over the level.

Question 6

Topic: Part 2 - Regulations (CFTC/NFA), Compliance, and Disclosures

An AP at an introducing broker is onboarding a new retail customer who wants to trade E-mini S&P futures “today” and says, “Can you just place a couple trades for me while I finish the forms?” The customer has not yet received the futures risk disclosure statement and has not provided any written authorization for discretionary trading.

Which action best aligns with just and equitable principles of trade?

• A. Wait for approved account, deliver disclosures, take only customer-directed orders
• B. Accept funds into the AP’s account to speed up trading
• C. Trade the account based on the customer’s verbal permission
• D. Enter a few trades now and complete documentation afterward

Best answer: A

Explanation: Just and equitable principles require fair dealing and customer protection, including proper account opening procedures and risk disclosure before trading. They also prohibit an AP from exercising trading discretion without the appropriate written authorization. Delaying trading until the account is properly opened and orders are clearly customer-directed best aligns with these standards.

Question 7

Topic: Part 2 - Regulations (CFTC/NFA), Compliance, and Disclosures

A branch manager at an introducing broker (IB) is responsible for supervising associated persons (APs). The manager sees the AP posted the following on social media to solicit new futures customers.

Exhibit: AP post (excerpt)

“Join my Futures Signal Room.
I turned $2,000 into $6,500 in 3 weeks.
No big drawdowns—stops protect you.
DM me to open an account at ABC Futures (IB).”

Which supervisory response is most appropriate based on the exhibit?

• A. Allow it because social media is the AP’s personal opinion
• B. Approve if the AP adds “past results not indicative”
• C. Stop use and submit for compliance review and retraining
• D. File a copy only; no review is needed

Best answer: C

Explanation: The post is a promotional communication used to solicit futures business and it includes specific performance results and statements that can be misleading about risk. Supervisors must ensure AP communications are reviewed and controlled, and they must take prompt corrective action when they find problematic material. The appropriate response is to stop the communication and escalate it for compliance handling and training.

Question 8

Topic: Part 1C - Hedging, Spreads, Speculation, and Options Strategies

A spread trader wants to express a view on soybean carrying charges with minimal exposure to outright price direction. The July futures are trading at 1,205.00 and November futures at 1,235.00 (July–November = -30.00 cents; market in contango). The trader estimates current storage and financing costs justify only about a 20-cent carry into November and plans to offset the spread well before July delivery notices.

If the trader buys July and sells November to profit from a narrowing carry, what is the primary risk/limitation for this setup?

• A. Time decay of option premium can erode returns if the spread does not move
• B. The position has the same outright price risk as a single July futures contract
• C. Carrying costs or convenience yield changes can widen the July–November spread
• D. Foreign exchange translation risk will dominate because soybeans are globally traded

Best answer: C

Explanation: A carrying charge (calendar) spread is driven largely by the cost of carry: storage, insurance/handling, and financing (interest), net of convenience yield. Buying the nearby and selling the deferred assumes the market’s implied carry is “too high” and will narrow. If carrying costs rise or convenience yield falls, contango can increase and the spread can move against the trader even with limited outright exposure.

Question 9

Topic: Part 1A - Futures Markets, Contracts, and Core Terminology

An AP at an FCM is opening a new options-on-futures account. Before placing the customer’s first trade (a long call on a crude oil futures contract), the customer asks: “If the futures price moves up $1.00 today, about how much should my call’s premium change, and will that sensitivity stay the same as expiration gets closer?”

What is the AP’s best next step in the conversation?

• A. Explain delta as premium sensitivity to the futures price and that call delta tends to rise toward 1 as it becomes more in-the-money and/or nears expiration
• B. Explain theta as the premium’s sensitivity to time and state it increases toward 1 near expiration
• C. Enter the order now and direct the customer to review delta after the trade confirms
• D. State that delta is fixed at trade entry and does not change with moneyness or time to expiration

Best answer: A

Explanation: Delta is a high-level measure of how much an option’s premium is expected to change for a given move in the underlying futures price. For calls, delta is typically between 0 and 1 and generally increases as the option moves further in-the-money. As time to expiration shrinks, delta tends to move more quickly toward its near-expiration extremes (near 0 for far out-of-the-money, near 1 for in-the-money).

Question 10

Topic: Part 1B - Margin, Settlement, Orders, and Price Analysis

A retail customer wants to enter a long position in a WTI crude oil futures contract only if price breaks out higher. The contract is currently trading at $74.20. The customer says: “If it trades up to $75.00, buy it—but do not pay more than $75.10 in a fast market.”

Two order tickets are suggested:

• Ticket 1: Buy stop at $75.00
• Ticket 2: Buy stop-limit with stop $75.00 and limit $75.10

Which order type best matches the customer’s instruction?

• A. Buy limit at $75.00
• B. Buy stop-limit (stop $75.00, limit $75.10)
• C. Buy market-if-touched (MIT) at $75.00
• D. Buy stop (stop-market) at $75.00

Best answer: B

Explanation: The customer wants a breakout entry (a buy stop trigger) but also wants price protection on the fill. A buy stop-limit triggers when the market trades at the stop price and then can execute only at the limit price or better. This fits “buy at $75.00, but not above $75.10.”

Question 11

Topic: Part 2 - Regulations (CFTC/NFA), Compliance, and Disclosures

A CTA’s website includes the following promotional excerpt.

Exhibit: Promotional excerpt (CTA)

“Flagship Program Performance: +38% for 2024.”
Source: Back-tested model results (no client accounts traded).
Assumptions: No commissions/fees; trades filled at settlement.
Risk statement shown on page: “Futures trading involves substantial risk of loss.”

Under NFA fair communication principles, which interpretation is best supported by the exhibit?

• A. It is acceptable because a general futures risk-of-loss statement is displayed
• B. It is acceptable as long as the CTA can document the back-test assumptions and methodology
• C. It is prohibited to show any performance unless NFA pre-approves the web page
• D. It must be clearly presented as hypothetical and include a prominent hypothetical-performance disclaimer

Best answer: D

Explanation: The exhibit explicitly states the performance is based on back-tested model results and that no client accounts traded the program, making it hypothetical performance. Promotional materials that present hypothetical results must clearly identify them as hypothetical and include prominent disclosures about the material limitations of hypothetical performance to keep the communication balanced and not misleading.

Question 12

Topic: Part 1A - Futures Markets, Contracts, and Core Terminology

A customer is reviewing options on August WTI Crude Oil futures. Based on the exhibit, which statement about moneyness is accurate?

Exhibit: Option quote snapshot (options on futures)

Underlying futures (Aug WTI)  Last: 82.00

Strike   Call premium (bid/ask)   Put premium (bid/ask)
81.00    1.30 / 1.35              0.35 / 0.40
82.00    0.75 / 0.80              0.75 / 0.80
83.00    0.40 / 0.45              1.35 / 1.40

• A. The 81.00 put is in-the-money because futures are above 81.00
• B. The 83.00 call is in-the-money because its premium is lower
• C. The 83.00 put is out-of-the-money because its strike is above 82.00
• D. The 82.00 call and 82.00 put are at-the-money

Best answer: D

Explanation: For options on futures, moneyness is determined by comparing the strike price to the current futures price. When the strike equals the futures price, both the call and the put at that strike are at-the-money. Here, the futures are at 82.00, so the 82.00 strike options are at-the-money.

Question 13

Topic: Part 2 - Regulations (CFTC/NFA), Compliance, and Disclosures

A new Associated Person (AP) at an NFA Member CPO is drafting the pool’s disclosure document for prospective participants. The AP wants the document to “read like marketing” and asks what must be included to keep communications fair and balanced.

Which approach best aligns with disclosure-document principles for a pool or trading program?

• A. List the trading strategy but exclude principals and conflicts to protect privacy
• B. Describe fees and expenses, material conflicts, principals, and the trading approach and risks
• C. Use only a one-page sales brochure and provide full disclosures upon request
• D. Focus on expected returns and omit fees until after the subscription agreement is signed

Best answer: B

Explanation: A pool or trading program disclosure document is meant to give a prospective customer a balanced, decision-useful summary of what they are buying. At a high level, it should clearly lay out how the program trades, the key risks, who the principals are, and what the customer will pay. It should also disclose material conflicts so the customer can evaluate incentives and potential bias.

Question 14

Topic: Part 1A - Futures Markets, Contracts, and Core Terminology

A storable commodity’s futures curve shows the deferred contract trading above the nearby contract. The market is well supplied, and the main difference between the two delivery months is the cost to finance and store the commodity until the later month (i.e., positive carry).

Which term best matches this price behavior and what a calendar spread is reflecting?

• A. Basis (cash-to-futures relationship)
• B. Convergence (cash and futures equal at expiration)
• C. Contango (normal carry market)
• D. Backwardation (inverted market)

Best answer: C

Explanation: When a storable commodity is plentiful and storage/financing costs are the key difference between delivery months, deferred futures commonly trade above nearby futures. This is contango (a normal carry market). The calendar spread largely reflects the net cost of carry (carry costs minus any convenience yield).

Question 15

Topic: Part 1C - Hedging, Spreads, Speculation, and Options Strategies

A trader observes that in a storable commodity, the deferred-month futures price is consistently higher than the nearby month, and the price difference tends to increase when storage rates and financing costs rise. Which spread concept best matches this behavior?

• A. Intercommodity spread
• B. Vertical option spread
• C. Inverted (backwardation) calendar spread
• D. Carrying charge (contango) calendar spread

Best answer: D

Explanation: A carrying charge spread reflects the market’s cost of carrying inventory forward in time. When storage and financing costs rise, deferred futures tend to be priced at a larger premium to the nearby month, so the calendar spread widens. This is the typical contango pattern for storable commodities.

Question 16

Topic: Part 1C - Hedging, Spreads, Speculation, and Options Strategies

A grain elevator is monitoring July SRW wheat futures and expects local cash basis to reflect both delivery economics and transportation.

Exhibit (all prices are per bushel):

• July SRW wheat futures: $6.50
• Toledo (delivery market) cash price for #2 SRW (par grade): $6.58
• Deliverable grade difference: #3 SRW is deliverable at an 8¢/bu discount to the contract invoice price
• Transportation from the elevator to Toledo: 12¢/bu

Assuming futures are being priced off the cheaper-to-deliver grade, what basis (cash \(-\) futures) should the elevator expect for #2 SRW at its location? Round to the nearest cent.

• A. +$0.04 per bushel
• B. -$0.04 per bushel
• C. +$0.08 per bushel
• D. -$0.12 per bushel

Best answer: B

Explanation: Basis is defined as cash minus futures. Start with the delivery-market #2 cash price and subtract transportation to estimate the elevator’s local cash price, then subtract the futures price to get local basis. The deliverable grade discount helps explain why delivery-market cash can trade above futures when a cheaper grade can be delivered.

Question 17

Topic: Part 2 - Regulations (CFTC/NFA), Compliance, and Disclosures

Which statement is most accurate regarding cost disclosures in futures promotional materials and the role of supervision?

• A. Cost disclosure requirements apply at account opening, not in promotional materials.
• B. If specific commissions are advertised, the firm must clearly disclose all material fees and whether the quote is per-side or round-turn, and supervisory pre-approval helps prevent misleading cost claims.
• C. Only the FCM’s commission must be disclosed; exchange and clearing fees are excluded.
• D. A commission figure may be advertised without other fees if it is labeled an estimate.

Best answer: B

Explanation: When a firm highlights a specific low commission in an ad, it must not present that number in a way that makes total trading costs seem lower than they are. Material additional charges (such as exchange, clearing, or NFA-related fees) and whether the rate is per-side or round-turn must be clearly disclosed. Effective supervision (e.g., pre-use review and approval) helps prevent these misleading cost presentations.

Question 18

Topic: Part 1A - Futures Markets, Contracts, and Core Terminology

A new customer asks an AP at an FCM why “speculators” are allowed to trade commodity futures if they are not hedging. The AP wants to answer in a way that is fair and balanced and helps the customer understand how speculation affects the market.

Which response best aligns with durable industry principles and accurately explains the liquidity–volatility tradeoff of speculative trading?

• A. Speculators guarantee hedgers will always get their price
• B. Speculators stabilize prices, reducing volatility for hedgers
• C. Speculators add liquidity, but can increase short-term volatility
• D. Speculation is risk-free because futures are exchange-cleared

Best answer: C

Explanation: Speculators can improve liquidity by supplying bids and offers and taking the opposite side of hedgers’ risk-transfer needs. That added participation can narrow spreads and support price discovery. However, speculative activity can also contribute to faster, larger short-term price moves, so communications should acknowledge both the benefit and the risk.

Question 19

Topic: Part 1C - Hedging, Spreads, Speculation, and Options Strategies

A U.S. trucking company expects to buy a large load of diesel fuel around January 25, 2027, and wants to place a long hedge now (October 2026) using NY Harbor ULSD (heating oil) futures. The risk manager’s constraints are (1) keep the hedge’s timing close to the cash exposure to limit basis mismatch, and (2) avoid thinly traded months to reduce execution slippage when entering and lifting the hedge.

Exhibit: Recent liquidity snapshot (approx.)

Which contract month is the most appropriate choice for this hedge given the key tradeoff between timing match and liquidity?

• A. February 2027 ULSD futures
• B. January 2027 ULSD futures
• C. December 2026 ULSD futures
• D. April 2027 ULSD futures

Best answer: A

Explanation: A hedger typically selects a contract month that is closest to the timing of the cash exposure while still being liquid enough to trade efficiently. Here, January matches timing best but is very thin, creating a meaningful liquidity/transaction-cost risk. February stays close to the late-January purchase date and offers deep liquidity, making it the best balance.

Question 20

Topic: Part 1A - Futures Markets, Contracts, and Core Terminology

Which statement best explains the main driver of term structure (contango/backwardation) differences between storable commodities (e.g., crude oil) and non-storable commodities (e.g., live cattle)?

• A. Storable commodities are usually in backwardation because they cannot be stockpiled to meet future demand.
• B. Both storable and non-storable commodities have the same term-structure drivers because futures prices always converge to spot at expiration.
• C. Storable commodities are linked across maturities by cash-and-carry forces (financing, storage, convenience yield), while non-storable commodities are less constrained by storage arbitrage and reflect expectations and risk premia more directly.
• D. Non-storable commodities are usually in contango because storage costs are higher than for storable commodities.

Best answer: C

Explanation: Storable commodities tend to have term structures governed by the economics of carrying inventory: financing and storage costs offset by any convenience yield. Because non-storable commodities cannot be stored and moved through time, their futures curve is not tightly pinned by cash-and-carry arbitrage and more directly reflects expected future spot conditions and risk premia.

Question 21

Topic: Part 1C - Hedging, Spreads, Speculation, and Options Strategies

A cattle feeder expects to sell finished cattle in the local cash market in 2 months and wants to reduce downside price risk using CME Live Cattle futures. Today the local cash price is 180.00 (USD/cwt) and the 2-month futures price is 185.00. In 2 months, the feeder sells cattle for 172.00 and offsets the hedge when futures are 175.00.

Which interpretation best describes the hedge result and the role of basis risk?

• A. Net price is 182.00; basis strengthened, improving results
• B. Net price is 180.00; basis risk is eliminated
• C. Net price is 190.00; basis weakened, improving results
• D. Net price is 172.00; futures gains are not part of net price

Best answer: A

Explanation: The feeder’s short futures position gains as futures prices fall, offsetting much of the cash-market decline. The effective (net) price equals the cash sale price plus the futures gain (or minus a futures loss). Because live cattle are non-storable, the basis can change unpredictably, so the hedge reduces risk but does not lock in a guaranteed cash price.

Question 22

Topic: Part 1C - Hedging, Spreads, Speculation, and Options Strategies

A grain processor expects to buy 100,000 bushels of soybeans in 3 months and wants to reduce the risk of rising cash prices. Each soybean futures contract is for 5,000 bushels. The customer tells the AP at the IB, “Buy 30 futures contracts to hedge it.”

What is the best next step in the proper sequence?

• A. Explain over-hedging risk and confirm hedge size before entering the order
• B. Tell the customer to buy 30 contracts and plan to offset later if needed
• C. Refuse to discuss contract quantity and only take the customer’s order
• D. Enter a market order to buy 30 contracts immediately

Best answer: A

Explanation: Before placing a hedge order, the AP should confirm that the futures position size matches the underlying exposure. Here, 30 contracts covers 150,000 bushels versus a 100,000-bushel need, which is an over-hedge. A hedge ratio mismatch increases residual risk by leaving the customer with a net futures position that can add losses if prices move the “wrong” way.

Question 23

Topic: Part 1B - Margin, Settlement, Orders, and Price Analysis

A customer is long one at-the-money call option on a corn futures contract. The option’s delta is +0.55. Corn futures rise by 4 cents per bushel, and you may assume delta stays approximately constant over this small move.

What is the most likely effect on the option’s premium (ignoring time decay and volatility changes)?

• A. Increase by about 4 cents per bushel
• B. Increase by about 7.3 cents per bushel
• C. Decrease by about 2.2 cents per bushel
• D. Increase by about 2.2 cents per bushel

Best answer: D

Explanation: Delta measures how much an option premium is expected to change for a small move in the underlying futures price. With a call delta of +0.55, a 4-cent rise in the futures price implies the option premium should rise by about 55% of that move. Holding other factors constant, the premium change is approximately \(0.55 \times 4\) cents.

Question 24

Topic: Part 1A - Futures Markets, Contracts, and Core Terminology

In commodity futures pricing, what is the basis?

• A. The portion of the futures price explained by interest and storage costs
• B. Price difference between two futures contract months
• C. Cash (spot) price minus the futures price for the same commodity
• D. Futures price minus the cash (spot) price for the same commodity

Best answer: C

Explanation: Basis links the spot (cash) market to the futures market by measuring their price difference for the same commodity. It is typically quoted as cash minus futures, so a positive basis means cash is above futures and a negative basis means cash is below futures. As expiration approaches, cash and futures tend to converge, causing the basis to narrow toward zero.

Series 3 futures and commodities map

Use this map after the sample questions to connect individual items to futures, options on futures, hedging, margin, customer accounts, market conduct, and NFA/CFTC rules these Securities Prep samples test.

    flowchart LR
	  S1["Commodity account or market scenario"] --> S2
	  S2["Identify contract hedge or speculative purpose"] --> S3
	  S3["Assess margin leverage and delivery risk"] --> S4
	  S4["Apply order disclosure and conduct rule"] --> S5
	  S5["Calculate position or risk effect"] --> S6
	  S6["Document account and compliance action"]

Quick Cheat Sheet

Mini Glossary

• CFTC: Commodity Futures Trading Commission, the U.S. derivatives regulator.
• NFA: National Futures Association, the futures industry self-regulatory organization.
• Hedge: Position intended to offset exposure in the cash or futures market.
• Initial margin: Performance bond required to open a futures position.
• Mark-to-market: Daily settlement of gains and losses on futures positions.

In this section

• Series 3 Futures Markets Sample Questions
  Try 10 Series 3 Futures Markets sample questions with explanations, then continue with the full Securities Prep practice test.
• Series 3 Margin and Orders Sample Questions
  Try 10 Series 3 Margin and Orders sample questions with explanations, then continue with the full Securities Prep practice test.
• Series 3 Hedging and Options Sample Questions
  Try 10 Series 3 Hedging and Options sample questions with explanations, then continue with the full Securities Prep practice test.
• Series 3 Futures Regulations Sample Questions
  Try 10 Series 3 Futures Regulations sample questions with explanations, then continue with the full Securities Prep practice test.
• Free Series 3 Full-Length Practice Exam: 120 Questions
  Try 120 free Series 3 practice questions across the official topic areas, with answers and explanations, then continue with the full Securities Prep question bank.