Series 3 Exam: Everything You Need To Know

The series 3 exam is the National Commodities Futures Exam. It is a National Futures Association qualification exam. This NFA exam is administered by FINRA. When passed a candidate may represent an NFA member firm. Series 3 licensed agents may conduct business in commodities futures contracts and options.

There are a variety of reasons why candidates seek to become a series 3 licensed. Some are entering the futures industry and are starting out in a new career. Others are coming from established financial services firms. These candidates are seeking to expand their product offerings to their clients. A series 3 license is required to recommend certain managed account platforms. Many managed accounts use futures to gain exposure to the markets. As such agents will need a series 3 license. If you join an NFA member organization your employer will require you to obtain the series 3 license. The license allows you to function in your new job.

A series 3 license allows you to register as an associated person of an NFA member firm. A series 3 licensed professional may transact business in futures contracts. Business may also be conducted in options on futures. After passing the series 3 exam you may trade commodity futures contracts such as:

• Oil and gas
• Wheat and corn
• Financial futures on the S & P 500 and NASDAQ 100
• Currencies
• Treasury securities

These are some of the contracts you will be licensed to trade and recommend to clients. Being licensed as an associate person of an NFA member firm allows you to earn commissions. Commissions are charged for executing orders for clients.

The Series 3 Exam consists of 120 scored multiple-choice questions. You must answer every question. There is no “skip button”. The exam has a time limit of 2 hours and 30 minutes. Each series 3 exam will contain 10 experimental questions. As a result, the total number of questions will be 130. These questions are not identified during the test. Nor do they count towards the candidate’s final score. Each exam provides more time for test takers to answer these questions.

No.  There are no prerequisites for the Series 3 Exam.

No. Candidates do not need to be sponsored by a firm to take the series 3 exam.

The passing score for the Series 3 Exam is 70%. The exam requires a score of 70% on each of the two sections. You must pass both the General Knowledge and the Regulations sections to pass the series 3 exam. A passing score in one section and a failing score in the other results in a failing grade. Even if the combined score total is greater than 70%

The Series 3 Exam tests the candidate’s knowledge of critical functions. These are the functions an associated person must perform. The questions focus on general knowledge of the futures markets and regulations. Series 3 test takers can expect to see challenging questions on the following:

• The role of the exchanges, clearing houses and warehouses
• Pricing of futures contracts
• Trading futures
• Market orders, limit order, market if touched orders and switch orders
• Using futures to hedge risk
• Changes in basis
• Spreading futures contracts
• Commodity futures options
• Hedging with options
• The National Futures Association (NFA)
• The Commodity Futures Trading Commission (CFTC)
• Handling and servicing customer accounts
• Required risk disclosures
• The role of FCMs, IBs, CPOs and CTAs

Yes. The series 3 exam contains a significant number of math questions. In fact, it is one of the more math focused exams. 

The test provides enough time for candidates to answer each question presented. The 2 hour and 30 minute time limit translates into 1.25 minutes per question. Test takers who have challenges interpreting questions, may find themselves pressed for time. Rushing to answer every question has a negative impact on performance. Ensure you have the ability to complete the test in the time allotted. To do this you must take 120-question practice tests. Taking series 3 practice exams is a big part of any candidate’s exam preparation. The questions presented are challenging. Students must have a deep understanding of the critical information required to pass.

The series 3 exam is a challenging exam. The information tested covers complex topics relating to market and product knowledge. You must demonstrate  a comprehensive understanding of how futures markets work. And the relationship between the contracts and the underlying physical commodities. Mastering this information will go a long way to help you pass the series 3 exam. Yet, this alone will not be enough. The series 3 also requires detailed knowledge relating to industry rules and regulations. You will need to have a good grasp of  the regulatory matters, down to the smallest detail. The series 3 exam is one of the only exams that requires you to pass both portions of the exam. Acing one section alone will not get you passed the exam if you bomb the other section. You must pass both the general knowledge and regulatory sections. Passing the series 3 exam is a significant challenge. Obtaining a series 3 license takes focus and dedication. Students should not take this test lightly. You must thoroughly prepare to take the exam and should make it a top priority. The series 3 exam covers areas many people are never exposed to in their careers. Many people who take the series 3 exam are not  involved in the commodities markets. Many have never had any experience with the mechanics of futures and complex spreads . These two areas are heavily tested on the exam. You should prepare for the exam by reading a textbook completely with a highlighter. You must read the book, there are no shortcuts and students need to understand this. Watch every video training lecture. The videos correspond to each chapter. You must clear your schedule, shut off your phone and focus.  You must master the application of the information by taking practice questions. We recommend at least 60 – 70 hours of preparation. This will help ensure you pass your series 3 exam and become licensed as an associated person of an NFA member.

# 1 Hedging 

This is by far the most difficult area of the exam for most students. The series 3 tests complex hedging concepts. It is key to understand the role of the user and producer. Knowing this is the first step to effectively establishing a hedge. Hedgers use futures to offset business risk, not to earn a profit. As the price of the underlying commodity changes, the price of the futures contract changes. The difference between the price of the commodity and the futures contract is known as the basis. Students must be able to calculate how the change in the basis impacts the hedge.

# 2 Futures Spreads

The series 3 exam presents complex questions covering futures spreads.  Many futures spreads are established by hedgers to offset business risk. While others are established by speculators who are betting against the hedger. Remember the user or producer of commodities are bona fide hedgers. The crush spread and the crack spread are examples of spreads students must master.

#3 Options

Options have always been a challenge for series 3 test takers. The buyer of an option acquires a right under the contract. This is unlike futures.  Both parties to the futures contract have obligations to perform. The exercise of the option contract results in the delivery of the futures contract. Not the physical commodity. Option spreads, straddles and delta hedges are areas where students face challenges. Students must know the difference between a futures spread and an option spread. These spreads are very different

The answer is, that while it feels like your series 3 license is indeed transferable, in actuality it is not. If you want to change firms, your series 3 registration / license along with all of your other registrations must be terminated by your current FINRA and or NFA member firm. Your former employer / the firm that you are leaving will fill out and submit a Form U5 to FINRA, if you are working for a FINRA member firm. This will terminate your employment and your registration with that firm. When you arrive at your new firm you must fill out and submit a new Form U4. This will begin your registration with your new firm and your series 3 license will become active at your new firm upon receiving notice from FINRA and the states where you conduct business. If you are associated exclusively with an NFA or CFTC member firm, your firm will initiate and terminate individual registrations through the online registration system or ORS

The cost to take the series 3 exam is $140. Obtaining a series 3 license requires an investment in professional development. Your series 3 license will qualify you as an associated person of an NFA member firm. This allows you to transact business in commodities futures contracts and options. Many  series 3 licensed agents enjoy lucrative and successful careers. The futures and financial services industry is a great field to work in. The good news is the costs are low. Certainly when compared to other types of training, certification and college expenses. Some employers pick up or reimburse the costs of training. Many will pay the testing and registration fees. Many get more resources such as extra test questions, books or videos. To ensure they pass their exam and become licensed. Our most comprehensive series 3 training package is $259. This includes a physical textbook, video training class, test banks and free shipping.   You will find that obtaining a series 3 license opens many doors for you throughout your career.

Once you have obtained your series 3 license you will be required to meet certain continuing educational requirements. Your firm will be required to provide you with periodic ethics training courses. NFA Rule 2-9 places a significant focus on the firm’s ongoing requirement to ensure that its employees receive continued and sufficient training covering ethical practices in the futures industry. Your employer must have written procedures detailing how it will meet its ethics training requirement. Your firm may have you attend a seminar, webinar or take an online course to satisfy the firm’s ethics training requirement

Your series 3 license is most likely the only license you will need if you plan on conducting business exclusively in futures. If you wish to transact business in securities you will be required to obtain a series 7 and 63 or series 7 and 66 licenses. If you have not already done so.

This is easily one of the top questions we get asked here at the Securities Institute. Yet the answer isn’t as simple as you might think. First, everyone learns differently and we have long discovered that there simply isn’t an effective one size fits all approach when it comes to effective preparation for the Series 3 Exam. Every student is different and has to find the right mix of materials to meet their needs. However there are a few steps everyone can take to improve their odds and ensure they are doing everything they can to prepare for their exam.

Always start with the textbook. Our Series 3 textbook is the foundation of our learning system. This book has everything you need to be successful.  Our series 3 textbook is presented in a comprehensive, easy to follow format. Because of this we recommend that every client read the book completely and take notes of key points. This will ensure you know more than the basics, it will ensure you know the facts. 

Our series 3 video lectures follow our textbooks chapter by chapter. Each lecture provides more details on the content contained in the reading. Different examples andshow you how the concepts are tested. This will help you master the material. Make sure you watch each video lecture to ensure complete understanding.

From there move to the practice tests. Take as many as you can and keep track of your results. The more you practice the more prepared you will be.

Passing the Series 3 Exam opens up a variety of career options. First, successful completion of this exam allows the individual to register as an associated person with an NFA member firm. Also, this exam allows the individual to trade in futures contracts as well as options on futures contracts.

Successful completion of the Series 3 Exam allows for application for NFA Membership in the following areas:

• CTA
• IB
• FCM
• CPO
• RFED
• Sole Proprietor

All candidates must appear at an approved testing center to take the series 3 exam. Prometric test centers are available throughout the US. In fact, Prometric has more than 3,000 test centers.  Many exam centers are open 7 days a week. Students may schedule the exam at any location on any day that the center is open. To schedule an exam appointment, visit the prometric website.

Good luck on your exam.

The Securities Institute of America, Inc