Building Blocks

Those intending to write the exam must come prepared with a certain foundation in both the vocabulary of the trade and the particular numeracy on which it focuses.
Here are some of the terms that you will need to know to get started

  • Customer: the person on whose behalf a futures trader operates. In this guide we use the terms "customer," "client" and "investor" interchangeably for style but, on the Series 3 exam, "customer" will be used exclusively.
  • Securities: financial instruments that have value and can be traded.
  • Hedge: a position in an investment to reduce the risk of adverse price movements in an asset; taking an offsetting position.
  • Speculation: an attempt to profit from futures price changes through the purchase or sale of futures contracts, while assuming the risk that the hedge transfers.
  • Stocks: securities that convey partial ownership of a company.
  • Bonds: securities that convey an obligation to pay the debt of a company or governmental entity.
  • Index: a statistical measure of change in a securities market; an imaginary portfolio of securities representing a particular market or a portion of it.
  • Spread: a position consisting of the purchase of contract and the sale of offsetting contracts; used to mitigate risk.
  • Options: securities that convey a right to buy or sell an underlying asset.
  • Arbitrage: simultaneous buying and selling of a security to achieve a riskless profit.
  • Margin: money borrowed from a brokerage to purchase securities for a customer's account.

That's enough to get started. There are hundreds of other terms you need to know, but we'll address them one at a time as we go along.

Mathematics Required For The Examination

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