# SERIES 3 CRAM SHEET — NFA Commodity Futures Exam

**120 questions · 2 hr 30 min · 70% to pass · NFA / CFTC**

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## CONTRACT MECHANICS

1. **Mark-to-market:** DAILY (futures, not weekly/monthly)
2. **Initial margin > Maintenance margin:** when equity falls below maintenance, restore to FULL initial
3. **Long futures:** unlimited profit, risk capped (price → 0)
4. **Short futures:** limited profit, unlimited risk
5. **Open interest:** rises when both sides NEW; falls when both close
6. **Volume ≠ Open interest:** volume = trades/day, OI = open positions running tally
7. **Tick value examples:** corn $0.01 = $50 per contract (5,000 bu); gold $0.10/oz = $10 per contract (100 oz)

## HEDGING

8. **Short hedge** = producer/owner of physical with cash position fearing PRICE DROP → sells futures
9. **Long hedge** = future buyer (manufacturer, processor) fearing PRICE RISE → buys futures
10. **Basis = Cash − Futures**
11. **Basis strengthens** (becomes less negative): GOOD for short hedger, BAD for long hedger
12. **Cross-hedge:** using a correlated but different commodity contract (introduces basis risk)
13. **Anticipatory hedge:** hedging a position you don't yet own/owe

## SPECULATION & SPREADS

14. **Bull calendar spread (intra-commodity):** LONG NEARBY + SHORT DEFERRED (in same commodity)
15. **Bear calendar spread:** LONG DEFERRED + SHORT NEARBY
16. **Inter-market spread:** different commodities (e.g., long corn + short wheat)
17. **Inter-exchange spread:** same commodity, different exchanges
18. **Limit up / Limit down / Locked-limit days:** trading halts at price boundaries

## MARKET STRUCTURE

19. **Contango:** futures > spot (carrying charge market — typical for grains in surplus)
20. **Backwardation:** futures < spot (inverted curve — supply tightness)
21. **Carrying charges:** storage + insurance + interest cost of holding the physical commodity
22. **Daily price limits:** halt mechanism; expand if hit; locked-limit = no trading possible at limit

## OPTIONS ON FUTURES

23. **Long CALL:** right to BUY underlying at strike (bullish)
24. **Long PUT:** right to SELL underlying at strike (bearish)
25. **At-the-money (ATM) call delta:** ≈ 0.50
26. **Greeks:** Delta (price sensitivity), Gamma (Δ change), Theta (time decay), Vega (vol), Rho (rates)
27. **Hypothetical results disclosures required** under NFA 2-29

## NFA / CFTC REGULATIONS

28. **NFA Compliance Rule 2-4:** Just and equitable principles of trade
29. **NFA Compliance Rule 2-9:** Diligent SUPERVISION (foundational rule)
30. **NFA Compliance Rule 2-29:** Communications with the public (incl. promotional / hypotheticals)
31. **NFA Compliance Rule 2-30:** Customer information / risk disclosure at account opening
32. **NFA Compliance Rule 2-36:** FOREX-specific
33. **CFTC Reg §1.20–1.30:** Customer fund segregation rules
34. **CFTC Reg §1.31:** Recordkeeping — 5 years total, first 2 years readily accessible
35. **CFTC Reg §1.35:** Order time-stamping (receipt + execution)
36. **CFTC Reg §1.55:** Risk Disclosure Statement at/before account opening
37. **CFTC Part 150:** Speculative position limits (hedgers can apply for exemptions)

## REGISTRATION CATEGORIES

38. **AP (Associated Person):** must pass Series 3 + sponsored by NFA Member
39. **FCM (Futures Commission Merchant):** holds customer funds, full clearing capability
40. **Independent IB:** must meet minimum financial requirements
41. **Guaranteed IB:** guaranteed by ONE FCM, exempt from minimum financials
42. **CTA (Commodity Trading Advisor):** advises others on futures trading
43. **CPO (Commodity Pool Operator):** operates a fund / pool

## PROHIBITED PRACTICES

44. **Wash trade:** prearranged net-zero — PROHIBITED
45. **Front-running:** trading ahead of customer orders — PROHIBITED
46. **Bucketing:** taking other side of customer order without disclosure — PROHIBITED
47. **Guarantees of profit:** PROHIBITED in promotional material

## DISCRETIONARY ACCOUNTS (NFA 2-8)

48. AP must have ≥ 2 years registration AND
49. Customer must give WRITTEN authorization AND
50. Supervising principal must approve

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## TEST-DAY PROTOCOL

- **Time/question:** ~75 sec average (don't speed-rush; use ALL the time)
- **Read questions twice** — many tests Series 3 candidates use exactly the same setup with one detail swapped
- **For LONG/SHORT scenarios:** draw the position on scratch paper; identify cash position; identify what you fear; pick the offsetting futures direction
- **For MARGIN math:** equity below MAINTENANCE → restore to INITIAL (not maintenance)
- **For OPTIONS:** identify the Greeks needed; ATM ≈ 0.50 delta is your benchmark

## COMMON GOTCHAS

- "**Bull spread**" in commodities = long near + short far. In OPTIONS = different (vertical spread, long lower strike + short higher).
- "**Daily price limit**" ≠ "**position limit**" — different concepts entirely
- "**Producer**" → SHORT hedge. "**Consumer/manufacturer**" → LONG hedge.
- **Hypothetical results** are PERMITTED with full disclosure. **Guarantees** are NEVER allowed.
- **Bunched orders** must be allocated by FAIR + EQUITABLE PRE-DETERMINED methodology, disclosed to customers (CFTC §1.35(b)(5))
- **Customer funds segregation** is a HARD rule — MF Global, PFGBest were segregation failures

**Pass: 70%. Don't speed-rush. Series 3 has tricky scenarios — read twice, pick once.**

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## VETTED:

Content cross-referenced against:
- NFA Series 3 Examination Outline (https://www.nfa.futures.org/registration-actions/registration-actions.html)
- NFA Compliance Rules (https://www.nfa.futures.org/rulebook/)
- CFTC 17 CFR Parts 1, 4, 33, 150, 155 (https://www.ecfr.gov/current/title-17)

**Note:** This cram sheet covers ~85% of typical exam content. Edge cases (specific futures contract specifications, exchange-specific rules) require studying the official prep manual (Solomon, Knopman, Pass Perfect).