Test Taking - Taking The Test

Taking The Test
You are given 150 minutes – and the screen will give you a running countdown of your time left, with a pop-up that gives you a five-minute warning – to answer 125 questions. Some you can pound out, so others you have the luxury of taking three or four minutes on. But any question that takes you five minutes or more means you'll probably get two wrong:

  1. Any question that it took you that long to figure out, you probably got wrong anyway, and
  2. You just used up your time for another question toward the end of the exam.

At some point, you just have to take your best guess – or any guess – and move on. You have the capability of marking questions for "review" at the end of the exam (time allowing) if you're unsure of the answer.

No question will be related to any other on the exam. They are all stand-alone.

Although you will be asked 125, questions, five of them are beta tests for future exams and are not counted toward your total. You will have no way of knowing which questions are actually being graded, so assume they all are. Of the 120 questions that matter, 85 will fall under the catch-all of "market knowledge" and 35 will have to do with regulations. For scoring purposes, these are "Part 1" and "Part 2" respectively; you must score at least 70% on each part (60 of 85 and 25 of 35). For test-taking purposes, questions come up in random order; you might get two market questions, a regulations question, another market, another regulation, another three markets, and so on.

Because there is no split between Part 1 and Part 2, there is no break scheduled during the Series 3 exam. If you have to leave your seat for any reason, the clock keeps running.

The questions take two forms: multiple choice or true/false. The multi-choices are all A, B, C or D. The true/false questions are all A or B. There are none of those tricky formats like:

I. Corn
II. Gold
IV. Eurodollars

A) I only
B) I and II
C) II and III
D) IV only

So don't worry about trick questions, just about difficult ones.

And always be mindful of how much time you don't have.

Doing The Math
Most of the math questions are similarly straightforward. They have to deal with whether a trade made money or lost money, and how much. If you follow the cash flow – and we'll show you how in a moment – you should do fine.

An example of the kind of question frequently asked would be:

A trader buys 10 December futures contracts for 5,000 bushels of corn for $2.50/bushel. A month later he sells the contracts for $3.00/bushel. What is the result of this trade?

The key here is to remember that every time the trader buys she is spending money, and every time she sells she is making money. If you use the negative sign (-) for every purchase and the positive sign (+) for every sale, you won't go wrong. It doesn't matter in which order the purchase and sale occurred, so you won't have to be concerned with, "Is this a short position or a long position?"

Here is how you should handle a question like this:

  1. On your note board, write " – 10 x 5,000 x $2.50," then solve: "-$125,000"
  2. Below that, write " + 10 x 5,000 x $3.00," then solve: "+$150,000"
  3. Add your two lines to yield "+$25,000".
  4. Then click whichever answer reads "$25,000 gain".

Spreads work similarly, but let's walk through it for clarity's sake:

A trader buys 10 December futures contracts for 5,000 bushels of corn for $2.50/bushel and hedges the position by selling 10 March futures for $2.75. A month later he unwinds the position by selling the December corn for $3.00/bushel and buying March corn for $3.20/bushel. What is the result of the trade?

Proceed as follows:

  1. On your note board, write " – 10 x 5,000 x $2.50," then solve: "-$125,000"
  2. Below that, write " + 10 x 5,000 x $2.75," then solve: "+$137,500
  3. Below that, write " + 10 x 5,000 x $3.00," then solve: "+$150,000"
  4. Below that, write " – 10 x 5,000 x $3.20," then solve: " -$160,000"
  5. Add your four lines to yield "+$2,500".
  6. Then click whichever answer reads "$2,500 gain".

Note that the dates in the above example are entirely incidental and have no effect on the math. You might also think that a good shortcut would be to combine the number of contracts with the number of bushels, but resist the temptation. There could be a question in which the trader does not hedge the entire position.

Sometimes the test will include extraneous information about strategy or market expectations. There will also be differences in terms of commodity, contract size or timing. But the math is the same regardless.

Of course, the test sometimes throws in commission costs. These are always quoted "per contract". So count them once and only once for every contract in play. You should not make the mistake of assuming the commission is for the whole lot of contracts, nor should pay two commissions per contract because the investor first bought and later sold them.

The test preparers may be displaying a little bias in the frequency with which their examples make rather than lose money. Any time you see a loss, check your math one more time.

Regulatory Questions
Related Articles
  1. Markets

    How Does Flatiron School Work and Make Money?

    Examine the Flatiron School as it pertains to the product it offers; learn how it monetizes its product and the role the school plays as an industry disruptor.
  2. Mutual Funds & ETFs

    Top 3 Commodities Mutual Funds

    Get information about some of the most popular and best-performing mutual funds that are focused on commodity-related investments.
  3. Chart Advisor

    Agriculture Commodities Are In The Bear's Sights

    Agriculture stocks have experienced strong moves higher over recent weeks, but chart patterns on sugar, corn and wheat are suggesting the moves could be short lived.
  4. Investing News

    Glencore Shares Surge in Hong Kong

    Shares of Glencore International, a leading multinational commodities and mining company, jumped by around 15% on London Stock Exchange, after the shares had gained about 71% earlier on the Hong ...
  5. Investing Basics

    What Does Plain Vanilla Mean?

    Plain vanilla is a term used in investing to describe the most basic types of financial instruments.
  6. Investing

    Have Commodities Bottomed?

    Commodity prices have been heading lower for more than four years, being the worst performing asset class of 2015 with more losses in cyclical commodities.
  7. Investing

    Oil: Why Not to Put Faith in Forecasts

    West Texas Intermediate oil futures have recently made pronounced movements. What do they bode for the world market?
  8. Investing

    The Quinoa Quandary for Bolivian Farmers

    Growing global demand for quinoa has impacted Bolivian farmers' way of life. Should the American consumer be wary of buying this product?
  9. Economics

    Is the U.S. Economy Ready for Liftoff?

    The Fed continues to delay normalizing rates, citing inflation concerns and “global economic and financial developments” in explaining its rationale.
  10. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  1. Implied Volatility - IV

    The estimated volatility of a security's price.
  2. Plain Vanilla

    The most basic or standard version of a financial instrument, ...
  3. Derivative

    A security with a price that is dependent upon or derived from ...
  4. Series 6

    A securities license entitling the holder to register as a limited ...
  5. Inverse Transaction

    A transaction that can cancel out a forward contract that has ...
  6. Best To Deliver

    The security that is delivered by the short position holder in ...
  1. Is a financial advisor required to have a degree?

    Financial advisors are not required to have university degrees. However, they are required to pass certain exams administered ... Read Full Answer >>
  2. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  3. Can I use my IRA to pay for my college loans?

    If you are older than 59.5 and have been contributing to your IRA for more than five years, you may withdraw funds to pay ... Read Full Answer >>
  4. Can I use my 401(k) to pay for my college loans?

    If you are over 59.5, or separate from your plan-sponsoring employer after age 55, you are free to use your 401(k) to pay ... Read Full Answer >>
  5. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  6. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
Hot Definitions
  1. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  2. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  3. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  4. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  5. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  6. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!