Getting Started - Mathematics Required For The Examination

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. Chart Advisor

    Watch This ETF For Signs Of A Reversal (BCX)

    Trying to determine if the commodity markets are ready for a bounce? Take a look at the analysis of this ETF to find out if now is the time to buy.
  2. Investing Basics

    The Importance of Commodity Pricing in Understanding Inflation

    Commodity prices are believed to be a leading indicator of inflation, but does it always hold?
  3. Options & Futures

    What Does Quadruple Witching Mean?

    In a financial context, quadruple witching refers to the day on which contracts for stock index futures, index options, and single stock futures expire.
  4. Options & Futures

    4 Equity Derivatives And How They Work

    Equity derivatives offer retail investors opportunities to benefit from an underlying security without owning the security itself.
  5. Fundamental Analysis

    Performance Review: Commodities in 2015

    Learn how commodities took a big hit in 2015 with a huge variance in performances. Discover how the major commodities performed over the year.
  6. Stock Analysis

    The Biggest Risks of Investing in SandRidge Stock

    Learn about the significant risks of investing in SandRidge. Read how the company may not be able to service its substantial debt load.
  7. Options & Futures

    Five Advantages of Futures Over Options

    Futures have a number of advantages over options such as fixed upfront trading costs, lack of time decay and liquidity.
  8. Chart Advisor

    These 3 ETFs Suggest Commodities Are Headed Lower (COMT,CCX,DBC)

    The charts of these three exchange traded funds suggest that commodities are stuck in a downtrend and it doesn't look like it will reverse any time soon.
  9. Fundamental Analysis

    The Changing Economics of the Oil Business

    Read about the changing economics of the oil business. Discover how oil companies are using technology to increase the efficiency of old wells.
  10. Investing Basics

    How to Become A Self-Taught Financial Expert

    Becoming a self-taught financial expert may not be as daunting of a task as it seems.
RELATED TERMS
  1. Warrant

    A derivative that confers the right, but not the obligation, ...
  2. Swap

    A derivative contract through which two parties exchange financial ...
  3. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  4. Convergence

    The movement of the price of a futures contract towards the spot ...
  5. Crude Oil

    Crude oil is a naturally occurring, unrefined petroleum product ...
  6. Futures Market

    An auction market in which participants buy and sell commodity/future ...
RELATED FAQS
  1. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  2. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  3. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  4. 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 >>
  5. Can mutual funds invest in options and futures? (RYMBX, GATEX)

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  6. 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 >>
Hot Definitions
  1. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  2. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  6. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
Trading Center