Series 3 Practice Exam

The National Commodity Futures Examination is more commonly known as the Series 3 Exam. Passing the Series 3 is required by the National Futures Association in order to sell futures contracts. The test is administered by FINRA, and the primary topics include futures trading theory, regulation, hedging, and speculation. The best place to start your review is our free Series 3 practice exam.


Series 3 Exam Questions

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Question 1
Which of these positions describes a long hedge?

A
Long on the commodity and short the futures contract.
B
Long on the commodity and long the futures contract.
C
Short on the commodity and long the futures contract.
D
Short on the commodity and short the futures contract.
Question 1 Explanation: 
Long hedges can be used to hedge against a short position already taken by an investor. Also used when a company knows it must buy a commodity in the future and wants to lock in the price.
Question 2
Which of the following is true of position traders?

A
They are a type of day trader.
B
They hold positions for longer terms.
C
They seek to profit from short-term fluctuations.
D
They will only hold long positions.
Question 2 Explanation: 
Position traders are the opposite of day traders. Position traders seek to profit from long-term trends.
Question 3
A trader owns 4 wheat contracts and sells them for a profit of $0.15/bu. The total commission is $90 and the contract size is 5,000 bushels. What is the trader's profit?

A
$660
B
$1,590
C
$2,910
D
$3,000
Question 3 Explanation: 
The profit on each contract is:
0.15 * 5,000 = 750
There are 4 contracts: 4 * 750 = 3,000
Less commission: 3,000 − 90 = 2,910.
Question 4
Markets are inverted when:

A
the cash price is above the futures price.
B
the cash price is below the futures price.
C
supplies of a commodity are high, driving down short-term prices.
D
none of the above.
Question 4 Explanation: 
In a normal market, the cash price is below the futures price. A market will often invert if the commodity is in short supply (which drives up short-term prices).
Question 5
When setting up a new account, FCM's must obtain the customer's previous investment and futures trading experience.

A
True.
B
False.
Question 5 Explanation: 
This is required by NFA rule 2-30. They must also obtain the customer's name, address, occupation, approximate age, estimated annual income, and net worth.
Question 6
How many years do NFA members need to retain financial and compliance records?

A
2
B
5
C
7
D
10
Question 6 Explanation: 
Records must be kept for 5 years according to NFA compliance rule 2-36.
Question 7
Soybean futures contracts are quoted in which of the following?

A
Bushels.
B
Tons.
C
Pounds.
D
Metric Tons.
Question 7 Explanation: 
A soybean contract is for 5,000 bushels.
Question 8
Which types of contracts are standardized and exchange-traded?

A
Futures contracts.
B
Forward contracts.
C
Both futures and forwards.
D
None of the above.
Question 8 Explanation: 
Futures are standardized and always trade on an exchange. Forwards are customized and trade over-the-counter.
Question 9
An inverted yield curve is formed when short-term yields fall below long-term yields.

A
True.
B
False.
Question 9 Explanation: 
With an inverted yield curve, long term yields are lower than short-term yields. Inverted yield curves often precede recessions.
Question 10
A put with a strike price of $4.20 was purchased by your client at 5 cents. The underlying futures price is now $4.10. What is the intrinsic value of the put?

A
0.
B
5 cents.
C
10 cents.
D
4 dollars and 10 cents.
Question 10 Explanation: 
The intrinsic value of a put option is the amount that it is in the money. It is calculated by subtracting the market price from the strike price. The premium paid doesn't affect the intrinsic value.
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Related Exams and Resources

Series 3 Exam

This exam consists of 120 multiple choice questions that must be completed within two hours and thirty minutes. It is a challenging test, so be sure to do plenty of Series 3 exam prep. Work through as many Series 3 sample questions as possible, starting with our free practice exam.