NFA Series 31 Practice Test & Mock Exam

Series 31 is the Futures Managed Funds Examination. It is narrower than the broad futures baseline and is aimed at candidates whose activity is limited to soliciting commodity-pool or CTA-managed business. If you are searching for Series 31 sample questions, a practice test, mock exam, or simulator, this is the main Securities Prep page to start on web and continue on iPhone or Android with the same account. This page includes 24 sample questions with detailed explanations so you can validate the live bank before opening the full simulator.

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What this Series 31 practice page gives you

• a direct route into the Securities Prep simulator for Series 31
• 24 source-backed sample questions across managed-funds market knowledge, CPO and CTA rules, disclosure, and communications controls
• detailed explanations that show why the better answer fits the managed-funds regulatory lane rather than the broader futures path
• a clear free-preview path before you subscribe
• the same subscription across web and mobile

Series 31 exam snapshot

• Provider: NFA
• Exam: Futures Managed Funds Examination
• Current training reference: 45 questions in 60 minutes
• Route context: limited activity around commodity pools and CTA-managed discretionary accounts

Topic coverage for Series 31 practice

• General market knowledge: futures and forward contracts, leverage, margin, basis, hedging, spreads, and volatility logic
• General regulation: supervision, registration, books and records, foreign-market activity, and qualified-eligible-participant concepts
• CPO and CTA rules: disclosure documents, performance reporting, fees, conflicts, and customer reporting
• Communications and sales practice: promotional-material review, hypothetical results, written procedures, and supervisory controls

What Series 31 is really testing

Series 31 focuses on whether the candidate understands the managed-funds side of futures business:

• core futures market mechanics and leverage concepts
• CPO and CTA disclosure, fees, and performance presentation
• customer-information and risk-disclosure duties
• supervision and promotional-material control in managed-funds solicitation

Major subject areas

• General market knowledge: futures and forward contracts, margin, settlement, spreads, basis, hedging, yield curve, and volatility
• General regulation: supervision, registration, trading on foreign markets, books and records, and qualified eligible participant concepts
• CPO/CTA rules: customer reporting, disclosure documents, performance records, conflicts, and business-background disclosure
• Communications and sales practice: promotional-material rules, hypothetical results, written procedures, and supervisory review

How Series 31 differs from adjacent routes

How to use the Series 31 simulator efficiently

1. Start with managed-funds disclosure and regulation drills because those topics drive the most distinctive Series 31 decisions.
2. Review every miss until you can explain which CPO, CTA, disclosure, or promotional-material rule changes the answer.
3. Move into mixed sets once you can shift between market knowledge and managed-funds compliance without losing the route-specific context.
4. Finish with timed runs so the 60-minute pace feels stable.

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 31 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.

Good next pages after Series 31

• Need the broader futures baseline first? Open Series 3 .

• Need the branch-manager supervision route instead? Open Series 30 .

• Need the foreign-registrant limited route instead? Open Series 32 .

• Need the full NFA map first? Open the NFA hub .

• 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.

24 Series 31 sample questions with detailed explanations

These 24 questions are drawn from the live NFA Series 31 bank and span the main blueprint areas shown above. Use them to test readiness here, then continue into the full Securities Prep simulator for broader timed coverage.

Question 1

Topic: Part 5 - Customer Information and Risk Disclosure

A branch review file for a discretionary CTA-managed account solicitation contains: the current CTA disclosure document, a dated electronic receipt showing the customer received the required risk disclosure before the recommendation, the customer’s new-account information, and a principal-approved performance presentation. The file also includes a text from the AP to the prospect sent after delivery: “Those risk pages are standard language. This program uses tight stops, so losses should be very limited.” There is no record of any principal review or corrective follow-up regarding that text.

Which control or review step is deficient?

• A. Documented review and correction of communications that minimize disclosed risks
• B. Customer initials on each page of the risk disclosure
• C. A benchmark comparison in the approved performance presentation
• D. A fresh registration printout for the CTA in the branch file

Best answer: A

Explanation: The decisive problem is not delivery of the disclosure document; it is the AP’s later message minimizing the disclosed risks. When a representative downplays risk after proper delivery, the firm’s supervision and documentation of review, correction, and retention of that communication become the key deficiency. Required risk disclosure cannot be neutralized by later oral or written assurances. In a managed-funds solicitation, the firm must supervise representative communications so they remain fair, balanced, and consistent with the disclosure document and risk statements already delivered. Here, the file already shows delivery of the current disclosure, customer information, and principal approval of the performance piece. The serious gap is that the AP sent a reassuring text implying losses should be limited, and the branch has no evidence that anyone reviewed, escalated, or corrected it. A proper control would document that follow-up communications are retained, reviewed, and, when necessary, corrected if they dilute or contradict required risk disclosure. The closest distractors might improve the file, but they do not address the core issue created by the AP’s text.

Question 2

Topic: Part 1 - General Market Knowledge

An AP for a CPO drafts a solicitation email for a commodity pool that trades equity index futures. The draft says: “Open interest has risen for three straight weeks, proving the market will keep moving higher.” The branch supervisor requires a revision before the email is used. Which revision best aligns with fair and balanced Series 31 standards?

• A. State that rising open interest makes further gains highly likely.
• B. Keep the sentence if the CTA currently has a bullish view.
• C. State that rising open interest may reflect participation, not guaranteed direction.
• D. Keep the sentence and add a general futures risk disclaimer.

Best answer: C

Explanation: The best correction removes the unsupported certainty. Open interest can help describe market activity, but it does not by itself prove that prices will rise, so the communication must be qualified and balanced. The core concept is fair and balanced use of market data in managed-funds communications. Open interest measures the number of outstanding futures contracts, so it may suggest participation or liquidity trends, but it does not guarantee future price direction. In a solicitation for a commodity pool, a representative cannot turn that data point into a prediction stated as fact. A compliant correction should: - describe open interest as one indicator - avoid certainty words like “proving” or “will” - leave room for market risk and contrary outcomes The closest distractors still overstate the inference or try to cure a misleading claim with opinion or boilerplate, which is not enough.

Question 3

Topic: Part 7 - Communication with the Public and Promotional Material

An AP of a registered CPO prepares three communications for branch use: a one-time email confirming a subscriber’s wire instructions, a brief email to one existing client commenting on recent energy-market volatility with no performance discussion, and a two-page PDF summarizing the pool’s strategy, fees, risks, and current performance that the AP plans to send to multiple prospects. Which action best aligns with Series 31 standards?

• A. Require supervisory approval of the PDF before use and retain it as promotional material
• B. Treat all three communications as ordinary correspondence because they are sent by email
• C. Treat only the market-commentary email as a standardized sales presentation
• D. Allow the PDF to be used without review because it summarizes the current disclosure document

Best answer: A

Explanation: The deciding issue is not the delivery method but the communication’s purpose and reuse. A PDF designed for repeated use with multiple prospects is a standardized sales presentation and should receive supervisory review as promotional material before use. A standardized sales presentation is a prepared communication intended for repeated use in soliciting investors, even if it is delivered electronically. Here, the two-page PDF is built for multiple prospects and includes strategy, fees, risks, and performance, so it falls within promotional-material controls and should be reviewed and retained accordingly. By contrast, a one-time operational message about wiring instructions is ordinary operational correspondence, and a single market-commentary email to one existing client with no performance discussion is informal commentary, not automatically a standardized sales presentation. The key takeaway is that classification turns on content, audience, and intended reuse, not on whether the message is sent by email.

Question 4

Topic: Part 2 - General Regulation

A branch manager receives three written complaints in 60 days about the same AP soliciting interests in a commodity pool. Each complaint alleges the AP described the pool as having limited downside and did not clearly discuss upfront fees; no formal NFA disciplinary action has been filed. Which action best aligns with Series 31 supervisory standards?

• A. Wait for NFA to issue formal charges before changing the AP’s sales activity
• B. Handle each complaint as an isolated matter and let the AP keep using the same approach
• C. Escalate immediately, preserve records, review all related solicitations, and restrict activity if warranted
• D. Send prospects a generic risk reminder but take no further action without a final finding

Best answer: C

Explanation: The best response is to treat repeated, similar complaints as a red flag requiring prompt internal escalation. Firms are expected to supervise proactively, especially when complaints suggest misleading risk or fee discussions in managed-funds solicitations. A serious complaint pattern can require action before formal NFA discipline because supervision is based on red flags, not just final enforcement outcomes. Here, multiple complaints about the same AP raise a credible concern that promotional statements and fee disclosures may be unfair, incomplete, or misleading. A proper response is to escalate the matter to compliance or supervisory principals, preserve emails and call records, review the AP’s communications and disclosure practices, and limit further solicitation if the risk to customers appears ongoing. Waiting for NFA to file charges is too passive. Firms have an independent duty to supervise associated persons and to address possible problems in risk disclosure, fee transparency, and promotional practices as soon as warning signs appear. The key takeaway is that recurring complaint patterns can trigger internal escalation even before any formal disciplinary case exists.

Question 5

Topic: Part 4 - CPO/CTA Disclosure Documents

A branch manager learns that an AP emailed a revised commodity pool disclosure document to several prospects the same day it was filed. The revision included updated performance and fee disclosures. Firm policy and the applicable requirement for this filing state that the document may not be distributed until internal approval and required NFA review are complete. Which action best aligns with Series 31 supervisory standards?

• A. Allow the branch to keep using the document if the AP tells prospects that NFA review is still pending.
• B. Permit use for existing prospects only, because no pool interests have been sold yet.
• C. Continue distribution with a cover note stating that final performance and fee figures may change.
• D. Stop all use immediately, notify compliance, document the incident, and send only the approved version after review is complete.

Best answer: D

Explanation: When a disclosure document requires review before use, distributing it early is a supervision and disclosure-integrity problem. The best response is to stop the use immediately, escalate to compliance, document the issue, and ensure only the approved document is used going forward. The core issue is that a branch used a disclosure document before the required review process was complete. In a managed-funds context, that creates risk that prospects receive performance, fee, or disciplinary information that has not been fully vetted for accuracy and fairness. Proper supervision requires prompt correction, not informal caveats. A sound response is to: - halt further distribution, - notify the responsible principal or compliance staff, - document what was sent and to whom, and - use only the approved version after review is complete. That approach best supports fair and balanced communications, accurate disclosure, and a defensible supervisory record. The closer distractors fail because disclaimers or limiting use to certain prospects do not cure the fact that an unapproved disclosure document was already used.

Question 6

Topic: Part 6 - Upfront Fee Disclosure

An AP of a CPO is drafting a response to a prospect who asks how upfront charges affect a new commodity pool investment. Which explanation is fully supported by the exhibit?

Exhibit:

Minimum subscription: $50,000
Selling commission: 4% of subscription
Organization and offering expense charge: 1% of subscription
Amount initially allocated to trading: $47,500

• A. The full $50,000 starts trading, and fees are charged later.
• B. About $47,500 begins trading because $2,500 is deducted upfront.
• C. Only the selling commission reduces initial capital; other charges do not.
• D. Upfront charges matter only if the pool has a loss.

Best answer: B

Explanation: The exhibit expressly shows that upfront charges reduce the amount initially available for trading. On a $50,000 subscription, the 4% selling commission plus 1% organization and offering charge total $2,500, leaving $47,500 invested at the start. This item tests fair upfront-fee disclosure. A customer-facing explanation should clearly state that certain charges are deducted at the outset, so the investor’s full subscription amount is not immediately put to work in the pool. Here, the exhibit gives all needed facts: a $50,000 subscription, a 4% selling commission, a 1% organization and offering expense charge, and an initial trading allocation of $47,500. A fair explanation follows the exhibit directly: - Total upfront charges equal 5% of the subscription. - 5% of $50,000 is $2,500. - That leaves $47,500 initially allocated to trading. The key takeaway is that upfront charges reduce invested capital immediately, not only later through performance results.

Question 7

Topic: Part 3 - CPO/CTA Regulations

An NFA Member’s principal reviews the following activity summary.

Exhibit: Managed-funds activity note

Blue Mesa Alternatives
- Solicits investors to buy interests in Blue Mesa Commodity Pool, LP.
- Accepts pool subscriptions and allocates trading results pro rata to participants.
- Separately, for a fee, directs trading in four customer-owned futures accounts.
- Blue Mesa does not carry accounts or clear trades.

Based on the exhibit, which interpretation is fully supported under the basic scope of NFA Compliance Rule 2-13?

• A. Blue Mesa is acting as both a CPO and a CTA.
• B. Blue Mesa is acting only as a CPO.
• C. Blue Mesa is acting only as a CTA.
• D. Blue Mesa is outside Rule 2-13 because it does not carry or clear trades.

Best answer: A

Explanation: The exhibit shows two separate managed-funds functions: operating a commodity pool and directing customer-owned futures accounts for a fee. Under the basic scope of Rule 2-13, that places the firm in both CPO and CTA territory, even though it is not acting as an FCM. The core issue is identifying the firm’s managed-funds role from the activity described. A firm that solicits interests in a commodity pool, accepts subscriptions, and allocates results to participants is functioning as a commodity pool operator. A firm that, for compensation, directs trading in customer-owned futures accounts is functioning as a commodity trading advisor. The exhibit shows both activities, so both regulatory scopes are implicated. The statement that Blue Mesa does not carry or clear trades does not change that conclusion. Carrying and clearing are FCM-type functions, but CPO and CTA status turns on pool operation and advisory/discretionary trading activity, not on whether the firm holds customer accounts itself. The closest mistake is to focus only on the pool and ignore the separately managed accounts.

Question 8

Topic: Part 5 - Customer Information and Risk Disclosure

When an AP recommends a commodity pool interest, why is collecting client information still important even though the customer will not direct individual futures trades?

• A. To determine which futures positions the client should enter personally
• B. To allow the CPO to omit standard risk disclosures
• C. To show that pooled management removes the need for product-fit analysis
• D. To evaluate whether the pool fits the client’s objectives and risk capacity

Best answer: D

Explanation: Client information matters because a commodity pool interest is still a recommendation to a specific customer. Even though the CPO or CTA makes trading decisions, the AP must understand the customer’s objectives, financial condition, and ability to bear risk before soliciting the investment. The core concept is that recommending a commodity pool interest is still a customer-specific sales recommendation, even if the investor does not choose the pool’s underlying futures trades. Client information helps the AP assess whether the product’s overall risk, leverage, liquidity, time horizon, and fee structure are appropriate for that customer and supports a fair, informed solicitation. A pool structure changes who makes the trading decisions; it does not eliminate the need to understand the investor. The relevant question is not which individual contracts the customer would trade, but whether the customer can reasonably bear the characteristics of the managed-funds investment being recommended. That is why customer-information collection remains important for pool interests.

Question 9

Topic: Part 1 - General Market Knowledge

An AP of an IB is reviewing a CTA disclosure document before emailing prospects about a managed futures program. Based on the excerpt, which sales statement is fully supported by the disclosure and would not contradict it?

Exhibit:

CTA Program Disclosure Excerpt
Strategy: Systematic trading in equity index, Treasury, and energy futures.
Exposure: The program may at times be heavily concentrated in one sector
          and may be net long, net short, or flat.
Holding period: Usually 1 to 10 trading days.
Principal risks: Substantial volatility and rapid drawdowns are possible.
Fees: 1% quarterly management fee and 20% incentive fee on net new
      trading profits.

• A. The program is designed to stay broadly diversified at all times.
• B. Clients pay a fixed management fee plus an incentive fee on net new profits.
• C. The strategy primarily seeks long-term hedging exposure over several months.
• D. Because the program can go flat, drawdowns should be modest.

Best answer: B

Explanation: The supported statement is the one that tracks the fee disclosure exactly. The exhibit says the program charges both a quarterly management fee and an incentive fee on net new trading profits, while the other statements contradict the stated strategy, concentration, or risk language. In managed-funds solicitation, the sales message must match the disclosure document’s stated strategy, risks, and fees. Here, the exhibit clearly discloses two fee components: a 1% quarterly management fee and a 20% incentive fee on net new trading profits. That makes the fee description the only statement fully supported by the document. The other statements go beyond or against the excerpt: - The program is not required to remain diversified because it may be heavily concentrated in one sector. - The holding period is short, usually 1 to 10 trading days, so describing it as a multi-month hedging approach is inconsistent. - The risk section expressly warns of substantial volatility and rapid drawdowns, so implying modest drawdowns is misleading. A representative should use only descriptions that mirror the disclosure, not soften or recast its risks or strategy.

Question 10

Topic: Part 7 - Communication with the Public and Promotional Material

A CTA soliciting new discretionary managed accounts is preparing a website update. The draft highlights one client’s 18% gain during the first 6 months of 2025 and calls it “typical,” but it does not show losing accounts, fees, or longer-term results. Firm policy permits performance advertising only if it uses the program’s composite results for all similarly managed accounts and presents available standardized trailing periods. Which revision best aligns with fair and balanced Series 31 promotional standards?

• A. Keep the 6-month winner, but add “past performance is not indicative”
• B. Replace it with composite net performance for similarly managed accounts over available standardized periods, with material disclosures
• C. Keep the best account example, but state that other clients may have different results
• D. Show gross program performance only, since the fee schedule appears elsewhere on the site

Best answer: B

Explanation: The problem is cherry-picking both an account and a time period. A fair promotional piece should present representative program results for similarly managed accounts, shown on a net basis and accompanied by material disclosures, rather than spotlighting a favorable outlier. Series 31 standards emphasize that promotional material must be fair, balanced, and not misleading. In a performance context, that means avoiding selective presentation of only the best account, best period, or best outcome. Here, calling one client’s strong 6-month result “typical” is especially problematic because it implies representative experience without supporting data. A sound revision uses the CTA program’s composite performance for similarly managed accounts, includes available standardized trailing periods, and presents performance net of applicable fees or with equally clear fee impact disclosure. Material limitations, risks, and the basis of calculation should also be disclosed so a prospect is not left with an overstated impression. A disclaimer alone does not cure cherry-picked content, and placing fee information elsewhere on the website does not make a one-sided performance claim balanced.

Question 11

Topic: Part 2 - General Regulation

An AP of an IB is soliciting interests in an affiliated commodity pool to retail prospects. Two months ago, a FINRA arbitration panel entered an $85,000 award against the AP; compliance has not yet approved an updated representative bio, but the AP is still using the old bio and, on a recorded call, described the award as “just noise” that “doesn’t matter.” What is the best supervisory response?

• A. Let solicitations continue if the AP answers questions about the award orally
• B. Defer action until the next routine disclosure-document update cycle
• C. Pull the old bio, escalate the matter, and require heightened supervision before more solicitations
• D. Keep the AP active after obtaining a written statement that the award was immaterial

Best answer: C

Explanation: A recent arbitration award, combined with an outdated bio and a recorded statement minimizing its significance, raises an immediate supervisory concern. The firm should stop use of the stale material, escalate the issue for compliance review, and impose heightened supervision before further managed-funds solicitation. The core issue is fair, balanced, and properly supervised communication in a managed-funds solicitation. A recent arbitration award can be important to a prospect’s evaluation of the representative, and the AP’s statement that it was “just noise” suggests the event is being minimized rather than presented in a balanced way. Because the AP is also using an unupdated bio, the supervisor should act immediately: remove the outdated material from use, escalate the matter to compliance or principal review, and document heightened supervision or other corrective steps before additional solicitations occur. Waiting for a routine update cycle or accepting the AP’s own characterization of the award does not address the risk of misleading communications. The closest distractors rely on informal fixes, but this situation calls for prompt documented supervisory intervention.

Question 12

Topic: Part 4 - CPO/CTA Disclosure Documents

Which disclosure item best illustrates a broader conflict of interest involving an affiliate or control person, rather than ordinary compensation for services?

• A. The CPO charges a 2% annual management fee.
• B. A control person owns the FCM carrying the pool’s trades.
• C. The CTA earns an incentive fee on net new profits.
• D. Associated persons receive stated selling compensation.

Best answer: B

Explanation: Ordinary compensation disclosure explains what the CPO, CTA, or sales personnel are paid for their services. A broader conflict exists when an affiliate or control person has ownership or control over another entity involved with the pool, such as the FCM carrying its trades. The key distinction is between how much someone is paid and whether a related-party relationship could influence decisions. Management fees, incentive fees, and stated selling compensation are standard compensation items that must be disclosed, but by themselves they do not necessarily show a broader conflict. When a control person owns the FCM that carries the pool’s trades, the CPO may have an incentive to direct business to that affiliated firm because of the ownership relationship. That raises a conflict issue separate from the fee schedule, since the relationship could affect vendor selection, execution arrangements, or other business judgments. So the affiliate/control-person relationship is the extra element that turns a simple compensation disclosure into a broader conflict disclosure.

Question 13

Topic: Part 6 - Upfront Fee Disclosure

An AP with a Series 31 limitation is preparing a summary email to solicit interests in a commodity pool. The pool charges a 4% selling commission and 2% organization and offering expense allocation at subscription. A customer investing $100,000 would have $94,000 credited to initial net asset value. Which communication approach best aligns with fair and balanced Series 31 standards?

• A. State that the full $100,000 is invested, with fees affecting returns over time
• B. Highlight projected strategy gains first and discuss charges only if the customer asks
• C. Describe the charges as administrative items that do not affect beginning capital
• D. State that upfront charges reduce the amount initially invested to $94,000

Best answer: D

Explanation: Customer-facing fee disclosure must be fair, balanced, and not misleading. When upfront charges are deducted at subscription, the communication should plainly state that less than the full contribution is initially invested and show the reduced starting amount. The core concept is fee transparency in managed-funds solicitation. If selling compensation and organization or offering expenses are charged upfront, they immediately reduce the capital credited to the customer’s account or pool interest. In this scenario, a $100,000 subscription does not start with $100,000 working in the pool; it starts with $94,000. A fair explanation should say that directly rather than implying the entire contribution is invested and fees appear only later through performance. A balanced communication should do two things: - identify that the charges are taken at the start - show the effect on initial invested capital That is more accurate than delaying the discussion, minimizing the charges, or shifting attention to hypothetical gains.

Question 14

Topic: Part 3 - CPO/CTA Regulations

An AP of a registered CPO is soliciting interests in a commodity pool. The pool disclosure document instructs subscribers to send funds to a designated subscription account in the pool’s name. Which handling of customer funds is acceptable?

• A. Check payable to the AP for forwarding
• B. Wire to the CTA’s operating account temporarily
• C. Deposit funds in a branch suspense account first
• D. Send funds to the pool’s designated subscription account

Best answer: D

Explanation: Customer funds should be handled exactly as the disclosure document directs and should not be routed through an AP’s, CTA’s, or branch’s own account. Sending money to the pool’s designated subscription account reduces safeguarding risk and avoids role confusion about who may accept or hold funds. The core concept is proper custody and clear role boundaries. In a managed-funds solicitation, an AP may solicit the investment, but that does not mean the AP should personally receive or hold customer money. When the disclosure document specifies a designated subscription account in the pool’s name, that is the acceptable destination because it matches the disclosed process and keeps customer funds out of personal, operating, or temporary internal accounts. Routing money through an AP, a CTA operating account, or a branch suspense account creates avoidable safeguarding concerns. It can blur who is acting as solicitor versus who is authorized to receive and control investor funds, and it increases the risk of commingling or misuse. The key takeaway is to follow the disclosed payment path and keep customer funds out of intermediary accounts.

Question 15

Topic: Part 5 - Customer Information and Risk Disclosure

An AP of a CPO is reviewing a slide deck for prospects considering interests in a commodity pool. One slide says the pool uses futures to seek enhanced returns and may reduce portfolio risk through diversification, but it does not explain how futures leverage can affect results. Which revision best aligns with Series 31 standards for fair and balanced risk disclosure?

• A. Keep the slide as written if the pool’s recent returns have been stable
• B. Replace the risk language with a statement that professional management limits downside exposure
• C. Move any discussion of leverage to follow-up conversations only for customers who ask
• D. Add that futures leverage can magnify gains and losses, causing sharp volatility and substantial loss potential

Best answer: D

Explanation: Managed-funds communications must present risks in a balanced way, especially when futures leverage is central to the strategy. A fair discussion should tell prospects that leverage can increase volatility and create substantial loss potential, even when diversification or professional management is also discussed. The core concept is balanced risk disclosure in managed-funds sales materials. When a commodity pool uses futures, leverage is not a minor detail; it is a key driver of both return potential and risk. A communication that highlights enhanced returns or diversification but omits how leverage can amplify gains and losses is incomplete and potentially misleading. A sound revision should make clear that: - futures positions can create large changes in pool value from relatively small market moves - volatility may be significant - investors can suffer substantial losses Professional management and diversification may be relevant, but they do not eliminate leverage risk. The closest distractors fail because they either rely on past stability, overstate downside protection, or postpone essential risk disclosure until after the solicitation.

Question 16

Topic: Part 1 - General Market Knowledge

An AP for a CPO drafts a sales email for a commodity pool that stays long commodity futures and rolls its positions each month. The draft says, “Deferred futures usually trade below nearby futures, so rolling forward typically adds return.” The branch manager wants the message to be fair and balanced. Which revision best aligns with Series 31 standards?

• A. Revise it to explain that normal carry often prices deferred futures above nearby contracts, while unusual shortages can narrow or invert that relationship.
• B. Approve it with a general volatility disclaimer.
• C. Keep it, but change “usually” to “often.”
• D. Replace it with a statement that inverted curves generally reduce risk for long pools.

Best answer: A

Explanation: The draft is misleading because it reverses the normal carry relationship. A fair and balanced communication should explain that deferred prices are often higher than nearby prices in normal carry markets, but that tight supply or other unusual conditions can compress or invert the spread. The key concept is the difference between normal carry and unusual market conditions. In a normal carry market, deferred futures are often priced above nearby futures because later delivery reflects storage, financing, and related carrying costs. For a long-only pool that rolls positions, that can mean roll costs rather than an automatic gain. But price relationships can change: tight supply or a high convenience yield can narrow the spread or invert it, putting nearby prices above deferred months. Promotional material should therefore describe the curve accurately and avoid suggesting that rolling forward typically adds return. A generic warning about volatility does not cure a basic misstatement about how futures price relationships normally work.

Question 17

Topic: Part 7 - Communication with the Public and Promotional Material

An AP of a registered CTA asks a branch supervisor to approve two email pieces for prospective QEPs. One is a neutral summary of the CTA’s trend-following program, fee schedule, and account minimums, with no performance claims. The other shows five years of back-tested returns labeled “illustrative,” presented net of the management fee but before any incentive fee, and the AP can provide only a spreadsheet with no written methodology or assumptions. What is the best supervisory action?

• A. Approve both because the audience is limited to QEPs
• B. Approve the back-test if the current disclosure document is attached
• C. Reject both pieces because all CTA emails need identical review
• D. Approve the descriptive piece, but hold the back-test for heightened review

Best answer: D

Explanation: The neutral summary and the hypothetical performance piece do not present the same supervisory risk. Descriptive material without performance claims can usually be reviewed for accuracy and balance in the ordinary way, but back-tested results need stricter scrutiny because they are assumption-driven and can easily overstate likely outcomes. The key concept is that hypothetical performance is more likely to mislead than neutral descriptive material, so supervisors should apply a heightened review standard. In this scenario, the descriptive email contains basic program facts and no performance claims, and the supervisor has source support for those facts. By contrast, the back-tested piece is based on a model, omits written assumptions and methodology, and shows returns before the incentive fee, all of which can materially affect how prospects interpret the results. A sound supervisory response is to separate the two reviews: - Approve the neutral descriptive piece if it is fair, balanced, and supported. - Withhold the hypothetical results until the firm has substantiation for the model inputs and assumptions. - Confirm fee treatment and add prominent limitations and explanatory disclosure. Attaching a disclosure document does not cure unsupported or potentially misleading hypothetical results.

Question 18

Topic: Part 2 - General Regulation

A branch uses a representative whose registration is limited to managed-funds solicitation under Series 31. A prospect is a Qualified Eligible Participant (QEP). Which activity is outside that representative’s permitted scope?

• A. Accepting a customer-directed futures order
• B. Soliciting an interest in a commodity pool
• C. Soliciting a CTA-managed discretionary account
• D. Providing a current pool disclosure document

Best answer: A

Explanation: Series 31 is a limited registration for managed-funds solicitation, such as commodity pools and CTA-managed discretionary accounts. It does not authorize a representative to take or handle customer-directed futures orders, even if the customer is a QEP. The core concept is scope of activity. A representative operating under the limited managed-funds solicitation authority associated with Series 31 may solicit interests in commodity pools and managed accounts run on a discretionary basis by a CTA, and may use the required disclosure materials in that process. That authority does not extend to general futures business such as accepting or handling a customer’s self-directed futures order. QEP status can affect eligibility for certain offerings or exemptions, but it does not convert a limited managed-funds representative into a fully authorized futures order-taking representative. The branch cannot rely on the customer’s sophistication to expand the rep’s registration scope. The closest trap is assuming that a QEP label broadens permitted activities; it does not.

Question 19

Topic: Part 4 - CPO/CTA Disclosure Documents

A CTA is updating the business-background section of its disclosure document. Which disclosure is most specific enough to support informed investor judgment?

• A. The principal has extensive futures experience and a strong compliance culture.
• B. The principal previously worked in the industry and had a regulatory matter that was resolved.
• C. From 2021 to 2023, the principal was a branch manager at an FCM; in 2024, an NFA case alleging recordkeeping failures was settled with a $25,000 fine and a 30-day suspension.
• D. The principal may have outside business activities and any material details are available upon request.

Best answer: C

Explanation: Business-background disclosures should give investors concrete facts, not conclusions or placeholders. The most useful disclosure identifies the person’s role, when it occurred, the regulator, what was alleged, and how the matter ended. For Series 31 purposes, disclosure-document background and conflict information must be specific enough for an investor to make an informed judgment. Generic statements like “strong compliance culture,” “matter resolved,” or “details available upon request” do not let an investor evaluate the seriousness, recency, or relevance of the issue. A sufficiently specific background disclosure usually includes the person’s position, dates, firm affiliation, the regulator or forum involved, the nature of the allegation or event, and the outcome. That level of detail allows an investor to weigh credibility and potential risk. The closest distractors sound reassuring, but reassurance is not a substitute for concrete disclosure.

Question 20

Topic: Part 6 - Upfront Fee Disclosure

A Series 31 AP is reviewing a commodity pool disclosure excerpt before discussing first-year results with a prospect. Based only on the exhibit, which interpretation is fully supported?

Exhibit:

Minimum subscription: $100,000
Selling commission at subscription: 3%
Organization and offering expenses at subscription: 2%
Amount initially available for trading: $95,000
First-year trading result: +10% on trading capital
No redemption fee

• A. The investor’s first-year return on original capital is 4.5%.
• B. The investor’s first-year return matches the 10% trading result.
• C. Upfront costs affect disclosure, but not first-year investor performance.
• D. The account would finish the year below the original subscription amount.

Best answer: A

Explanation: The exhibit distinguishes gross trading results from investor performance after upfront charges. Since 5% is deducted before trading begins, only $95,000 earns the 10% gain, leaving the investor with $104,500, or a 4.5% return on the original $100,000 subscription. Gross trading results and net investor performance are not the same when upfront costs are deducted at the start. Here, the pool reports a 10% gain on the capital actually traded, but the investor did not have the full $100,000 working in the market. The 3% selling commission plus 2% organization and offering expenses reduce the starting trading capital to $95,000. A 10% gain on $95,000 is $9,500, so the year-end value is $104,500. Compared with the original $100,000 subscription, that is a net gain of $4,500, or 4.5%. The key takeaway is that upfront charges lower investor performance even when the pool’s trading record is positive.

Question 21

Topic: Part 3 - CPO/CTA Regulations

A branch supervisor is reviewing whether a Rule 2-13 checklist matches the product being solicited. Based on the exhibit, what is the best supervisory response?

Exhibit: Principal review note

Product: Atlas Diversified Pool LP
Interest sold: Limited-partnership units
Trading account: One omnibus futures account directed by the CPO
Rule 2-13 checklist selected: CTA managed-account reports to each customer
Planned customer reporting: Individual trade confirmations and monthly account statements

• A. Approve; the added individual reports are more protective.
• B. Approve if the FCM sends the individual statements.
• C. Stop approval and reclassify it as a commodity pool solicitation.
• D. Keep the checklist if only sophisticated investors are solicited.

Best answer: C

Explanation: The exhibit describes a commodity pool, not individual CTA-managed accounts: investors buy partnership units and the CPO trades one omnibus futures account. The supervisor should stop approval and require the solicitation, disclosure, and reporting framework to match a pool interest. The key supervisory step is to classify the product correctly before approving solicitation. Here, the investors are buying limited-partnership units, and trading occurs in one omnibus futures account controlled by the CPO. That fact pattern matches a commodity pool interest. It does not match an individually managed CTA account, where each customer typically has a separate account relationship. When the Rule 2-13 checklist is built around the wrong product, the issue is not solved by sending more reports or delegating mailings to an FCM. The principal should halt approval, recode the campaign as a commodity pool solicitation, and make sure the disclosure and customer-reporting approach matches pool participants rather than individual managed-account customers. The closest trap is the idea that extra detail is automatically acceptable, but added detail does not cure a basic product-classification mismatch.

Question 22

Topic: Part 5 - Customer Information and Risk Disclosure

An AP of an NFA member CPO has finished an initial suitability call with a prospective investor in a commodity pool. The AP plans to send the pool’s current disclosure document and a one-page attachment that says the pool “seeks smoother returns through diversification” and highlights three profitable months. The attachment has not been principal-approved and does not mention that the investor could lose a substantial portion or all of the investment. What is the best next step?

• A. Send both materials now because the disclosure document covers the risks.
• B. Send the disclosure document now and route the attachment for review.
• C. Request subscription paperwork first, then provide fuller risk discussion later.
• D. Add a verbal caution about losses, then send the attachment unreviewed.

Best answer: B

Explanation: The next proper step is to use the current disclosure document but hold the separate sales piece until supervisory review is completed. A managed-funds risk discussion must fairly prepare the customer for volatility and possible substantial loss, and an unapproved attachment that emphasizes smooth or profitable results does not do that. In a managed-funds solicitation, each communication used with a prospect must be fair and balanced. Here, the current disclosure document is the proper source for formal risk disclosure, but the extra attachment is still promotional material and cannot be used if it has not been approved and if it downplays variability and loss by stressing smoother returns and profitable months only. The proper sequence is: - provide the current disclosure document - hold the attachment from use - submit the attachment for principal review and revision - use it only after approval and balanced risk language are added The closest mistake is assuming the disclosure document automatically cures a separate, unbalanced sales piece.

Question 23

Topic: Part 1 - General Market Knowledge

An AP for a CTA prepares a webinar slide for prospects in a managed-futures program. The branch manager’s review note says:

Draft claim: "Open interest rose 8% this week, so crude oil prices are likely to keep rising."
Review note: Open interest measures outstanding contracts, not certainty of direction.
Permitted point: Rising open interest with a price move can suggest expanding participation in the current move.
Required change: Remove any statement that open interest proves or guarantees future prices.

Which revised statement is fully supported by the exhibit?

• A. Rising open interest guarantees the current uptrend will continue.
• B. Rising open interest proves aggressive new buying is dominating trading.
• C. Rising open interest may reflect expanding participation, but it does not by itself prove future price direction.
• D. Rising open interest means short covering will soon force prices higher.

Best answer: C

Explanation: Open interest shows how many futures contracts remain outstanding, not a guaranteed forecast of price direction. The supported correction is the one that keeps the statement limited to participation in the move and avoids claiming proof about future prices. The core concept is that open interest is a market-activity measure, not a directional promise. In the exhibit, compliance allows a narrow statement: when open interest rises along with a price move, that can suggest expanding participation in that move. But the note expressly forbids saying open interest proves or guarantees what prices will do next. A proper correction should do both of these things: - describe open interest as evidence of participation or commitment - avoid claiming certainty about future direction The strongest distractors go too far by treating open interest alone as proof of new buying, short covering, or an inevitable continuation. Those claims infer more than the exhibit allows.

Question 24

Topic: Part 7 - Communication with the Public and Promotional Material

An AP of a CTA submits the following website excerpt for principal review before soliciting managed accounts. Based only on the exhibit, which action is fully supported?

Exhibit: Draft website excerpt

Alpha Ridge CTA Program
2023 return: +18.4%
2024 YTD return: +11.1%
"Designed to profit in any market"

Internal review notes:
- Returns are gross of a 2% management fee and 20% incentive fee.
- Program strategy changed in January 2024 from diversified trend-following to concentrated energy trading.
- No discussion of drawdowns, volatility, or the effect of fees on results.

• A. Approve it because two performance periods are shown
• B. Revise it to add fee, volatility, and strategy-change context
• C. Approve it if the AP explains fees orally
• D. Revise it only to add a general risk disclaimer

Best answer: B

Explanation: The exhibit supports withholding approval and requiring revisions. The performance numbers are gross of fees, the strategy materially changed, and no volatility or drawdown context is given, so the presentation is not fair and balanced as shown. When past performance appears in CTA promotional material, the core issue is whether the numbers are presented with enough context to avoid a misleading impression. Here, the excerpt highlights strong returns, but the review notes say those returns are gross of significant fees, the program changed from diversified trend-following to concentrated energy trading, and there is no discussion of drawdowns or volatility. Each omission is material because it affects how a prospect would interpret the historical results. - Fee impact can materially reduce reported results. - A strategy change can make earlier performance less comparable. - Volatility or drawdown context helps show the risk taken to achieve returns. A generic approval or oral follow-up would not cure those defects in the written piece itself.