Getting Started - Building Blocks

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
Related Articles
  1. Investing Basics

    What Does Plain Vanilla Mean?

    Plain vanilla is a term used in investing to describe the most basic types of financial instruments.
  2. 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.
  3. 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?
  4. 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?
  5. 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.
  6. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  7. Investing

    A Look at 6 Leading Female Value Investors

    In an industry still largely predominated by men, we look at 6 leading female value investors working today.
  8. Forex Fundamentals

    What Are the Best Hours to Trade the Mexican Peso?

    The best times to trade the Mexican peso are centered around economic releases, typically in the morning hours.
  9. Chart Advisor

    Trade Base Metals With These 3 ETFs

    News out of Alcoa is causing active traders to turn toward base metals for opportunities. Before diving into the market, check out the charts of these three ETFs.
  10. Stock Analysis

    This Is What Carl Icahn's Portfolio Looks Like

    Read about some of the holdings in Carl Icahn's portfolio. Learn about his activist campaigns against companies that he believes are performing poorly.
  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. Capitalization Rate

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

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

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

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
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!