Series 31 — Futures Managed Funds Examination Quick Reference

Last revised: July 1, 2026

Compact FINRA Series 31 reference for managed futures, CPO/CTA roles, disclosure, suitability, risks, fees, and core futures calculations.

Exam Identity and Scope

This Quick Reference supports independent preparation for the FINRA Series 31 — Futures Managed Funds Examination (Series 31). The exam focuses on managed futures activity, especially soliciting participation in commodity pools, soliciting discretionary accounts managed by commodity trading advisors, and supervising those limited activities.

High-Yield Scope Boundaries

Topic	Exam-ready distinction
Series 31 focus	Managed futures products and related regulatory, risk, disclosure, and suitability obligations.
Not a broad futures trading exam	Do not assume Series 31 activity includes full-service futures order handling or personal discretion over customer futures accounts.
Securities + futures overlap	A commodity pool interest may also be a securities product. Securities regulation does not replace CFTC/NFA commodity-interest obligations.
FINRA role	FINRA is the official exam provider for the Series 31 exam.
CFTC/NFA context	CFTC is the federal futures regulator; NFA is the futures industry self-regulatory organization.

Managed Futures Structure Map

Role / Entity	Core function	Exam trap
Commodity Pool	Pooled vehicle that trades commodity interests for multiple participants.	Pool participants own an interest in the pool, not the pool’s individual futures positions.
CPO, Commodity Pool Operator	Operates or solicits funds for a commodity pool.	CPO is not the same as CTA; CPO runs or sponsors the pool.
CTA, Commodity Trading Advisor	Advises others on commodity-interest trading for compensation.	CTA gives advice or trading direction; it does not necessarily operate a pool.
AP, Associated Person	Individual who solicits or supervises solicitation for an FCM, IB, CPO, or CTA.	AP status attaches to regulated futures business activity, not merely job title.
FCM, Futures Commission Merchant	Accepts futures orders and customer funds/margin.	Unlike an IB, an FCM may hold customer funds.
IB, Introducing Broker	Solicits or accepts orders but does not accept customer funds.	Customer funds should not be made payable to an IB or AP.
Principal	Person with management, ownership, or control responsibilities.	Principals can have registration, fitness, and supervisory implications.
NFA Member	Futures industry member subject to NFA rules.	Members generally must avoid doing regulated futures business with entities required to be registered but not properly registered.

Product and Account Selection Matrix

If the customer wants…	More likely structure	Key suitability issue
Professional trading in a pooled vehicle	Commodity pool	Fees, liquidity, pool risk, disclosure document, tax reporting.
Delegated trading in the customer’s own account	CTA managed account	Written trading authorization, FCM account, transparency, ability to fund margin.
Multi-manager exposure	Fund of funds / multi-advisor pool	Layered fees, manager selection risk, less direct transparency.
Direct self-directed futures trading	Regular futures account	Usually outside the managed-futures solicitation focus of Series 31.
Diversification from stocks/bonds	Managed futures may be considered	Low correlation is not guaranteed and can change in stress periods.
Capital preservation or guaranteed income	Usually unsuitable	Managed futures involve leverage, volatility, and possible substantial loss.

Core Futures Concepts

Term	Quick definition	Exam point
Futures Contract	Standardized exchange-traded contract to buy or sell an asset at a future date/price.	Standardization improves liquidity but does not eliminate market risk.
Long Futures	Obligation/position benefiting from price increases.	Long loses when futures price falls.
Short Futures	Obligation/position benefiting from price decreases.	Short loses when futures price rises.
Margin	Performance bond deposited to support futures obligations.	Not a down payment and not a loan from the broker.
Initial Margin	Deposit required to open a position.	Lower than notional value, creating leverage.
Maintenance Margin	Minimum equity required to keep position open.	Falling below it can trigger a margin call.
Variation Margin	Daily settlement gain/loss from marking to market.	Futures gains/losses are recognized daily in the account.
Mark to Market	Daily adjustment of account equity to current settlement prices.	Prevents losses from accumulating unnoticed.
Notional Value	Contract price × contract size × number of contracts.	Risk exposure can greatly exceed margin deposit.
Tick Size	Minimum price fluctuation.	Tick value drives contract-level profit/loss.
Settlement	Closing by offset, delivery, or cash settlement.	Many positions are offset before delivery, but delivery risk matters.
Open Interest	Number of outstanding contracts not yet offset or delivered.	Not the same as trading volume.
Volume	Contracts traded during a period.	High volume may indicate liquidity, not direction.
Daily Price Limit	Maximum permitted daily move for some contracts.	Locked-limit markets can make exit difficult.

Futures Calculation Sheet

\[ \text{Long futures P/L} = (\text{Exit price} - \text{Entry price}) \times \text{Contract size} \times \text{Contracts} \]\[ \text{Short futures P/L} = (\text{Entry price} - \text{Exit price}) \times \text{Contract size} \times \text{Contracts} \]

Calculation	Plain formula	Use
Tick value	Tick size × contract size	Converts price movement into dollars.
Futures P/L by ticks	Number of ticks × tick value × contracts	Fast exam calculation.
Notional exposure	Futures price × contract size × contracts	Measures economic exposure, not cash invested.
Return on margin	P/L ÷ margin deposit	Shows leverage effect; can be very high or very negative.
Account equity	Beginning equity + realized P/L + unrealized P/L - fees/withdrawals	Determines margin status.
NAV per pool unit	Net assets ÷ units outstanding	Used for pool subscriptions/redemptions.
Rate of return	Ending value plus distributions minus beginning value, divided by beginning value	Use net investor value, not gross trading gains.
Basis	Cash price - futures price	Watch convention if a question defines it differently.
Break-even trading return	Total investor-level costs ÷ initial investment	Approximation; exact treatment follows offering documents.

Margin Call Logic

Situation	Result
Equity stays above maintenance margin	No margin call.
Equity falls below maintenance margin	Additional funds may be required.
Customer cannot meet margin call	Positions may be liquidated.
Market moves faster than liquidation	Loss can exceed the margin deposit in a futures account.
Commodity pool investor	Liability depends on pool structure and offering terms; do not assume all pools have identical liability.

Hedging, Speculation, and Basis

Position / Strategy	Used by	Goal	Main remaining risk
Short hedge	Producer, holder of inventory, seller of future output	Protect against price decline.	Basis risk; opportunity cost if prices rise.
Long hedge	Processor, manufacturer, future buyer	Protect against price increase.	Basis risk; opportunity cost if prices fall.
Speculative long	Trader expecting price increase	Profit from rising price.	Loss if price falls.
Speculative short	Trader expecting price decrease	Profit from falling price.	Loss if price rises.
Calendar spread	Trader long one delivery month and short another	Profit from relative price change.	Spread can widen/narrow unexpectedly.
Intercommodity spread	Trader long one commodity and short related commodity	Profit from relative value.	Correlation may break down.

Basis Exam Traps

Statement	Correct view
“A hedge eliminates all risk.”	False. Basis risk remains.
“Cash and futures prices always move identically.”	False. They tend to converge near delivery, but not perfectly.
“A perfect hedge always maximizes profit.”	False. Hedging reduces risk; it may also limit upside.
“Speculators are always improper.”	False. Speculators provide liquidity but assume risk.

Options on Futures

Concept	Call on futures	Put on futures
Buyer’s right	Enter a long futures position at the strike.	Enter a short futures position at the strike.
Buyer’s maximum loss	Premium paid.	Premium paid.
Seller/writer risk	Potentially substantial if futures rise.	Potentially substantial if futures fall.
Intrinsic value	Futures price - strike, if positive.	Strike - futures price, if positive.
Break-even for buyer	Strike + premium.	Strike - premium.
After exercise/assignment	Futures position is created.	Futures position is created.

Option Premium Components

Component	Meaning
Intrinsic value	Amount the option is in the money.
Time value	Premium above intrinsic value.
Volatility effect	Higher expected volatility generally increases option premiums.
Time decay	All else equal, time value tends to decline as expiration approaches.

Managed Futures Performance Terms

Term	Meaning	Exam use
Drawdown	Decline from peak to trough.	Critical risk measure for managed futures.
Maximum Drawdown	Largest observed peak-to-trough loss.	Do not confuse with average loss.
Volatility	Variability of returns.	Higher return with much higher volatility may not be better.
Correlation	Degree to which returns move together.	Low correlation can support diversification but is not stable forever.
Sharpe Ratio	Excess return per unit of volatility.	Useful, but backward-looking and sensitive to measurement period.
High-Water Mark	Prior peak used before incentive fees may be charged again.	Depends on fund documents; do not assume it always applies.
Notional Funding	Trading exposure exceeds cash allocated.	Increases leverage and risk.
Net Performance	Performance after fees and expenses.	More relevant to investors than gross trading returns.

Fee and Expense Reference

Fee / Cost	Typical meaning	Candidate trap
Management Fee	Ongoing fee often based on assets or NAV.	Charged even if performance is poor, unless documents say otherwise.
Incentive Fee	Fee based on trading profits or appreciation.	Check high-water mark, hurdle, and whether gains are realized or unrealized.
Brokerage Commissions	Trading execution/clearing cost.	High turnover can materially reduce returns.
Organizational / Offering Costs	Costs to create or offer pool interests.	May affect investor break-even.
Administrative / Audit / Legal Fees	Operating expenses of the pool.	Often borne by pool participants.
Selling Compensation	Compensation for distribution or solicitation.	Must be disclosed; can increase break-even return.
Redemption Fee	Charge for early or certain withdrawals.	Relevant to liquidity suitability.
Fund-of-Funds Layered Fees	Fees at underlying manager and fund level.	Diversification may come with double-fee drag.

Disclosure Document Checklist

A Series 31 candidate should be able to identify why disclosure matters and what types of information are material.

Disclosure area	What to verify	Exam point
Risk disclosure	Leverage, volatility, liquidity, possible substantial loss.	Oral statements cannot cure misleading written disclosure.
Trading program	Markets, strategy, discretion, use of leverage.	Vague strategy descriptions can be misleading.
CPO/CTA/principal background	Business experience and relevant disciplinary history.	Background omissions are material.
Fees and expenses	Management, incentive, brokerage, admin, selling costs.	Investor returns must be evaluated net of costs.
Break-even analysis	Trading profit needed to recover expenses.	Especially important for pools with high upfront or recurring costs.
Conflicts of interest	Related brokers, compensation incentives, allocation conflicts.	Disclosure does not automatically make an unsuitable recommendation suitable.
Past performance	Actual results, drawdowns, period covered, net/gross basis.	Past performance is not a guarantee.
Hypothetical performance	Assumptions and limitations.	Must not be presented as actual trading.
Redemption/liquidity terms	Lockups, notice periods, gates, valuation timing.	Managed futures pools may be illiquid.
Tax considerations	Pass-through reporting, mark-to-market concepts, investor tax differences.	Investor should seek tax advice when appropriate.
Material changes	Updates or amendments to material information.	Stale documents are a red flag.

Suitability Decision Rules

Customer fact pattern	Suitability implication
Needs near-term liquidity for living expenses	Managed futures pool with lockups may be unsuitable.
Cannot tolerate loss of principal	Managed futures generally unsuitable.
Wants guaranteed return	Red flag; guarantees are inconsistent with futures risk.
Has concentrated stock/bond portfolio and high risk capacity	Managed futures may be considered for diversification, with full risk disclosure.
Sophisticated investor but short time horizon	Sophistication alone does not overcome liquidity/time-horizon mismatch.
High net worth but no risk tolerance	Wealth alone does not make a speculative product suitable.
Tax-exempt or retirement investor	Review tax, leverage, and account restrictions carefully.
Investor attracted only by recent performance	Must discuss cyclicality, drawdowns, and non-guarantee of future results.

Core KYC Factors

Investment objective.
Risk tolerance and risk capacity.
Liquidity needs.
Time horizon.
Income, net worth, and ability to sustain loss.
Investment experience.
Tax status.
Existing portfolio concentration.
Understanding of leverage, fees, and redemption limits.
Whether the customer can evaluate complex disclosures.

Communication and Promotional Material Rules

Communication issue	Proper approach	Common trap
Past performance	Present fairly, with relevant period, risk, drawdown, and fee basis.	Cherry-picking only profitable periods.
Hypothetical/simulated results	Clearly identify as hypothetical and disclose limitations.	Making back-tested results look like actual trading.
Risk vs reward	Balanced presentation.	Large return claims with small-print risk language.
Guarantees	Avoid guarantees of profit or protection from loss.	“Low risk” or “can’t lose” language.
Comparisons	Use fair, relevant comparisons.	Comparing leveraged futures to insured products.
Testimonials	Ensure not misleading and disclose material compensation/conflicts if used.	Treating anecdotal success as typical.
Graphs and charts	Use accurate scales and complete context.	Truncated scales that exaggerate gains.
Oral statements	Must be consistent with written disclosure.	Sales talk that contradicts the disclosure document.
Approval and records	Follow firm supervisory review and retention procedures.	Assuming informal emails or slides are exempt.

Customer Funds and Custody

Rule concept	Exam-ready point
Customer funds	Must be handled according to firm, FCM, CPO, and regulatory procedures.
Payee controls	Funds should be payable to the proper pool, FCM, or custodian, not to an AP personally.
Segregation	Futures customer funds are subject to segregation rules, but segregation is not insurance against market loss.
SIPC/FDIC confusion	Futures trading losses are not protected by SIPC or FDIC merely because a financial firm is involved.
Commingling	Improper commingling or misuse of customer funds is a serious violation.
Margin deficits	Futures accounts can require additional funds; pool documents determine participant obligations.

Regulatory and Conduct Reference

Area	What to remember
Antifraud	No false statements, omissions of material facts, deceptive practices, or misleading performance claims.
Registration status	Verify that firms and individuals are properly registered or exempt for the activity conducted.
NFA membership	NFA member firms must observe NFA rules and supervisory obligations.
Bylaw-style trap	A member should not conduct required-regulated futures business with an entity that should be registered but is not.
Supervision	Firms must supervise APs, communications, account activity, and promotional material.
Discretion	Trading discretion requires proper written authorization and approval; Series 31 solicitation activity does not imply personal trading authority.
Complaints	Escalate customer complaints through firm procedures; do not resolve secretly or personally.
Books and records	Required records must be accurate, retained, and available for regulatory review.
Disciplinary disclosure	Material regulatory, civil, or criminal history can be disclosure-relevant.
Arbitration/reparations	Futures disputes may involve NFA arbitration or CFTC reparations; securities disputes may involve securities forums depending on product and facts.

CPO vs CTA: Fast Differentiation

Question stem clue	Likely answer
“Operates a pooled investment vehicle trading futures”	CPO.
“Solicits money to invest in a commodity pool”	CPO activity or AP of a CPO.
“Advises clients on futures trading for compensation”	CTA.
“Customer signs power of attorney for trading in own FCM account”	CTA managed account.
“Investors share pro rata gains/losses of pooled vehicle”	Commodity pool.
“Person solicits managed futures accounts for a CTA”	AP activity for CTA-related business.
“Person supervises APs soliciting pool interests”	Supervisory AP/principal issue.

Account Opening and Solicitation Workflow

    flowchart TD
	    A[Identify managed futures product or CTA program] --> B[Confirm firm and registration/exemption status]
	    B --> C[Understand strategy, fees, risks, liquidity, and conflicts]
	    C --> D[Collect customer profile and suitability facts]
	    D --> E{Suitable and customer understands risks?}
	    E -- No --> F[Do not recommend; document concerns]
	    E -- Yes --> G[Deliver current disclosure and offering materials]
	    G --> H[Explain performance limits, fees, break-even, tax, and liquidity]
	    H --> I[Obtain required approvals, acknowledgments, and subscription/account documents]
	    I --> J[Ensure funds go to proper payee/custodian/FCM]
	    J --> K[Ongoing supervision, updates, statements, and complaint escalation]

Order Types and Trading Vocabulary

Term	Meaning	Exam trap
Market Order	Execute promptly at best available price.	Execution likely; price not guaranteed.
Limit Order	Buy/sell at specified price or better.	Price protected; execution not guaranteed.
Stop Order	Becomes a market order when stop price is reached.	Can execute far from stop in fast markets.
Stop-Limit Order	Becomes a limit order when stop price is reached.	May not execute.
Day Order	Expires at end of trading session if not executed.	Do not assume it remains open.
GTC Order	Remains until canceled or otherwise expired under rules/procedures.	Not literally permanent.
Spread Order	Simultaneous related long/short positions.	Spread risk remains.
Offset	Closing a futures position with an opposite trade.	Most futures positions close this way before delivery.

Tax and Reporting Concepts

Concept	Exam-level takeaway
Mark-to-market tax concept	Certain regulated futures contracts are treated as sold at year-end for tax purposes.
60/40 concept	Certain futures gains/losses may receive blended long-term/short-term capital treatment under U.S. tax rules.
Commodity pool partnership reporting	Many pools pass tax items through to investors, often using partnership-style reporting.
Tax suitability	Tax consequences vary by investor type and vehicle; avoid giving unqualified tax advice.
After-tax return	High gross returns can be reduced by fees, turnover, and tax treatment.

Common Exam Traps

Trap	Correct answer pattern
“Margin is a partial payment for the commodity.”	Margin is a performance bond.
“Futures risk is limited to initial margin.”	Direct futures losses can exceed margin. Pool liability depends on documents.
“Managed futures guarantee diversification.”	They may diversify, but correlation can change and losses can occur.
“A CPO and CTA are interchangeable.”	CPO operates/solicits pools; CTA advises or directs trading.
“An IB can hold customer funds.”	FCMs hold customer funds; IBs do not.
“Past performance proves manager skill.”	It is historical, can be non-repeatable, and must be shown fairly.
“Hypothetical performance is the same as actual.”	Hypothetical results have special limitations and disclosure needs.
“Disclosure makes every sale suitable.”	Suitability is separate from disclosure.
“A wealthy customer is automatically suitable.”	Risk tolerance, liquidity, time horizon, and understanding still matter.
“Securities regulation replaces futures regulation.”	Dual regulation can apply.
“Segregated funds eliminate all risk.”	Segregation does not protect against trading losses and may not eliminate all custodial risk.
“Oral risk explanations can contradict documents.”	Oral and written communications must be consistent and not misleading.

Final Review Checklist

Before exam day, be able to:

Distinguish CPO, CTA, AP, FCM, IB, principal, NFA, CFTC, and FINRA.
Explain why managed futures can be high risk despite professional management.
Calculate basic futures P/L, tick value, notional exposure, NAV per unit, and return.
Identify the suitability concerns created by leverage, liquidity limits, fees, and tax complexity.
Recognize misleading promotional material, especially performance advertising.
Explain margin as a performance bond, not an investment down payment.
Identify when a hedge leaves basis risk.
Compare commodity pools, CTA managed accounts, and fund-of-funds structures.
Apply anti-fraud, supervision, disclosure, customer-fund, and complaint-handling principles.

Next Step

Use this Quick Reference as a checklist while working mixed Series 31 practice questions. For each missed question, label the error as role confusion, formula error, disclosure issue, suitability issue, communication rule, or futures mechanics, then drill that category until the distinction is automatic.

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