Mathematics Required For The Examination
Math on the Series 3 entails nothing more than addition, subtraction, multiplication and division. One does, however, need to read word problems carefully in order to understand which operations are required to arrive at a solution and why.

For example, say you had to compute an initial margin that is 25% higher than the maintenance margin. You are told that the maintenance margin is $500. You would need to multiply $500 times 1.25 (that means knowing that 25% is the same as 0.25, and that you have to add 1 to that to account for the $500 starting point) to arrive at $625.

To compute profits or losses from trades, you'll have to multiply the number of contracts by the number of units per contract by the price per unit. We will spend a great deal of time on this in Chapter 11: Test Taking.

You will also need to understand numerical concepts that may appear at first blush counterintuitive. For example, if the basis – an important concept from Chapter 6: Hedging – goes from -6 cents to -3 cents, you need to know that it is going up rather than down.

Lastly, you will need to understand ratios. They are nothing more than division. But you may well be asked to compute the return on equity if your trade earned $100 gross profit on an investment of $25. If you answered "$4," that's incorrect. First of all, the answer will be a percentage, not a dollar figure. Secondly, you have to subtract that $25 investment out of the $100 profit to make a fair comparison. The formula, then, is ($100-$25)/$25. (This also presupposes that you know to perform the function in the parentheses before moving on.) So we come up with $75/$25, which can be expressed as 3, but is more correctly written as 300%, when asked for a return on equity figure.



General Theory

Related Articles
  1. Managing Wealth

    What's a Good Profit Margin for a Mature Business?

    How to determine if the amount you clear dovetails with the competition.
  2. Managing Wealth

    Tailoring Your Investment Plan

    Start your own investing adventure with the help of some simple guidelines.
  3. Investing

    Buying on Margin

    When an investor buys on margin, he or she pays a portion of the stock price – called the margin -- and borrows the rest from a stockbroker. The purchased stocks then serve as collateral for ...
  4. Financial Advisor

    How to Know When to Pass on an Investment

    Knowing what to invest in is important, but knowing what not to invest in is equally important. Here's how to decide when to walk away.
  5. Investing

    5 Questions You Need to Ask Your Advisor Before Investing

    To succeed in investing, you must implement a process that incorporates five critical questions.
Frequently Asked Questions
  1. What are Common Examples of Monopolistic Markets?

    Discover what causes real instances of market monopoly, how it persists and where monopoly privilege is most common in the ...
  2. What is the gold standard?

    The gold standard is a monetary system where a country's currency or paper money has a value directly linked to gold, but ...
  3. What's the most expensive stock of all time?

    The most expensive publicly traded stock of all time is Warren Buffett’s Berkshire Hathaway.
  4. What is a "socially responsible" mutual fund?

    As the name suggests, socially responsible mutual funds invest exclusively in socially responsible investments.
Trading Center