Experience the Quality With Free Series 3 License Exam Questions That Helps Candidates Pass

In a standard futures contract, the buyer (long) agrees to accept delivery of the underlying commodity (or cash settlement) at expiration. The seller (short) must deliver. Unlike options, both parties have obligations. Margins are performance bonds, not interest payments, and no “premium” is paid. Series 3 tests this key distinction.

NFA audits member firms (including FCMs) for compliance with segregation, capital, and disclosure rules. CFTC sets the rules, NFA enforces. Exchanges oversee trading but not compliance audits.

The crack spread measures refinery margins between crude (input) and refined products like gasoline/heating oil. Crush applies to soybeans, reverse crush is opposite, butterfly is a 3-month calendar spread. Series 3 emphasizes identifying processing spreads.

Short put max loss = strike − premium, down to zero price. Loss is large but capped at underlying value. Many confuse with unlimited loss, which applies to short calls. This distinction is critical.

MIT orders become market orders once the trigger price is touched. Unlike stop orders (which trigger above for buys, below for sells), MITs are used to enter positions at more favorable levels. Knowing subtle order differences is a common test trap.