Series 3 Practice Questions (2026) — Free Sample Questions with Answers

Answer: C

Buy calls on SOFR futures: Wrong. Reverses the price/rate relationship: calls gain when rates fall and futures prices rise.

Sell SOFR futures: Wrong. Right direction, but a futures hedge locks in the rate and gives up the benefit of falling rates.

Buy puts on SOFR futures: Correct. rising rates push the SOFR futures price (100 − rate) down, so long puts gain; if rates fall the puts expire and she borrows at the lower rate, losing only the premium.

Sell calls on SOFR futures: Wrong. The premium gives only limited protection against rising rates, and the calls lose if rates fall.

Interest-rate futures move inversely to rates: borrowers fear rising rates, so they buy puts (or sell futures) on SOFR futures.

Answer: B

1. 1. Long cash crude; long 10 $70 puts at $1.80; short 10 $80 calls at $1.50; 1,000 bbl each; expected basis −$1.00.
2. 2. Net premium = $1.80 paid − $1.50 received = $0.30 debit.
3. 3. Floor = $70 − $0.30 − $1.00 = $68.70/bbl (ceiling = $80 − $0.30 − $1.00 = $78.70).
4. 4. Minimum net price: $68.70/bbl.
5. 5. Check with futures at $62: cash $61; put gain $8; calls expire; $61 + $8 − $0.30 = $68.70.

$67.20: Wrong. Subtracts the $1.80 put premium but ignores the $1.50 received for the calls.

$68.70: Correct. fence floor = put strike − net premium + basis = $70 − ($1.80 − $1.50) − $1.00 = $68.70.

$69.70: Wrong. Accounts for the net premium but ignores the $1.00-under basis.

$70.70: Wrong. Reverses the basis sign; $1.00 under futures lowers the price received.

Fence (long put + short call): floor = put strike − net premium + basis; ceiling = call strike − net premium + basis.

Answer: D

1. Position: 3 bbl crude in, 2 bbl gasoline + 1 bbl ULSD out.
2. Gasoline $2.40 × 42 = $100.80/bbl; ULSD $2.20 × 42 = $92.40/bbl.
3. Products = 2 × $100.80 + $92.40 = $294.00; crude = 3 × $72.00 = $216.00.
4. Crack = ($294.00 − $216.00) ÷ 3 = $26.00 per barrel of crude.
5. Check: $26.00 ÷ 42 ≈ $0.62 per gallon.

$0.62: Wrong. This is the margin per gallon; it was never converted back to dollars per barrel.

$20.40: Wrong. Used only the ULSD leg ($92.40 − $72.00 = $20.40) and left out the two barrels of gasoline.

$24.60: Wrong. Weighted gasoline and ULSD equally (average $96.60 − $72.00 = $24.60) instead of 2:1 as the 3:2:1 ratio requires.

$26.00: Correct. products = 2 × $100.80 + 1 × $92.40 = $294.00; minus 3 × $72.00 = $78.00; ÷ 3 barrels = $26.00.

Crack spread = value of refined products − cost of crude, in the same units ($/bbl), weighted by the spread ratio.

Answer: B

1. Position: long 4 March at $4.40, short 4 May at $4.52 (May 12¢ over).
2. March: $4.55 − $4.40 = +15¢; May: $4.52 − $4.61 = −9¢; net +6¢/bu.
3. 6¢ × 5,000 bu × 4 spreads = $1,200.
4. Net result = $1,200 gain.
5. Check: the spread narrowed from 12¢ to 6¢ (May over), a 6¢ narrowing that benefits the long-nearby (bull) spread.

$300 gain: Wrong. This is the result for one spread; the trader holds four.

$1,200 gain: Correct. March +15¢ and May −9¢ give +6¢ per bushel; 6¢ × 5,000 × 4 = $1,200.

$1,800 loss: Wrong. Counted only the losing May leg (9¢ × 20,000 bu).

$3,000 gain: Wrong. Counted only the winning March leg (15¢ × 20,000 bu).

Spread P&L = net change of both legs (or change in the spread) × contract size × number of spreads.

Answer: A

1. Position: long 20,000 bu cash; short 4 × 5,000 = 20,000 bu September futures.
2. Cash: $5.80 − $6.00 = −20¢; futures: $6.40 − $6.05 = +35¢.
3. Cash −$4,000; futures +$7,000.
4. Overall result = +$3,000.
5. Check: basis −40¢ → −25¢ = 15¢ stronger; 15¢ × 20,000 = $3,000 gain for a short hedger.

$3,000 gain: Correct. cash −20¢ and futures +35¢ give +15¢ × 20,000 = $3,000, matching the 15¢ basis strengthening.

$4,000 loss: Wrong. This is the cash-market loss alone; it ignores the futures gain.

$7,000 gain: Wrong. This is the futures gain alone; the cash value fell $4,000.

$11,000 gain: Wrong. Added the $4,000 cash decline to the futures gain instead of subtracting it.

A short hedger's overall result equals the basis change × quantity: strengthening is a gain.

Answer: C

1. Position: long 20 × 5,000 bu = 100,000 bu May corn at $4.40.
2. Futures change: $4.55 − $4.40 = +15¢ gain.
3. Commissions: 20 contracts × $50 = $1,000 ÷ 100,000 bu = 1¢/bu.
4. Net cost = $4.65 − $0.15 + $0.01 = $4.51/bu ($451,000 total).
5. Check: basis −10¢ → +10¢ (20¢ stronger, unfavorable to a long hedger): $4.30 + $0.20 + $0.01 = $4.51.

$4.40: Wrong. Assumed the hedge locks in the January futures price; the closing basis of +10¢ and the commissions also count.

$4.49: Wrong. Subtracted the commissions; for a buyer they are an added cost ($1,000 ÷ 100,000 bu = 1¢ more).

$4.51: Correct. Cash $4.65 − futures gain 15¢ ($4.55 − $4.40) + commissions 1¢ (20 × $50 = $1,000 ÷ 100,000 bu) = $4.51.

$4.81: Wrong. Added the 15¢ futures gain to the cash price; a long hedger's futures gain reduces its cost.

Long hedge net price = cash purchase price − futures gain (+ futures loss) + commissions = original futures price + closing basis + commissions.

Answer: A

Buy; the price rises from 95.75 to 96.25: Correct. price = 100 − rate, so a fall in the rate from 4.25% to 3.75% raises the price from 95.75 to 96.25, which benefits a long.

Sell; the price falls from 95.75 to 95.25: Wrong. Moved price in the same direction as the rate; under 100 − rate the price rises when rates fall.

Sell; the price rises from 95.75 to 96.25: Wrong. The price change is right, but a short loses when the price rises.

Sell; the price falls from 96.25 to 95.75: Wrong. Started from the wrong rate: at 4.25% the price is 95.75, and a fall in the rate raises the price, so a short loses.

Interest-rate futures move inversely to rates: expect lower rates → buy SOFR (or Treasury) futures.

Answer: B

1. Position: long 2 contracts × 5,000 bu = 10,000 bu.
2. Price change: $11.22 − $11.40 = −18¢/bu.
3. Loss = $0.18 × 10,000 = $1,800; equity = $5,200 − $1,800 = $3,400.
4. $3,400 is below maintenance (2 × $2,000 = $4,000), so a call is issued.
5. Call = initial $5,200 − equity $3,400 = $1,800. Check: $3,400 + $1,800 = $5,200.

$600: Wrong. This only brings equity back to the $4,000 maintenance level; a margin call restores the account to initial margin.

$1,800: Correct. the 18¢ loss on 10,000 bu is $1,800, leaving $3,400 of equity, below the $4,000 maintenance level, so the customer must deposit $1,800 to return to the $5,200 initial level.

$2,600: Wrong. Deposited one contract's initial margin; the call is the amount needed to bring total equity back to initial margin.

$5,200: Wrong. Restored the entire initial margin as if the account had no equity left; $3,400 of equity remains.

A margin call is triggered when equity falls below maintenance, and it requires a deposit that brings the account back to initial margin.

Answer: A

1. Calendar months between March and May: 2; between May and July: 2.
2. Full carry for each spread = 2 × 6¢ = 12¢.
3. March–May spread = $5.92 − $5.80 = 12¢ → equal to full carry.
4. May–July spread = $6.01 − $5.92 = 9¢ → 3¢ below full carry.
5. Check: arbitrage caps a deferred premium at about full carry, but nothing forces it up to full carry, so 9¢ is possible in a normal market.

March–May is at full carry (12¢ for two months), and May–July is below full carry: Correct. Each pair is two calendar months apart, so full carry is 2 × 6¢ = 12¢. March–May = $5.92 − $5.80 = 12¢ (full carry); May–July = $6.01 − $5.92 = 9¢ (3¢ below full carry).

Both spreads are at full carry, since each deferred month is at a premium: Wrong. A premium alone shows a carrying-charge market; the 9¢ May–July spread is 3¢ short of the 12¢ full carry.

March–May is above full carry, since one contract month means one month of carry: Wrong. Counted contract months instead of calendar months; March to May is two months of storage, so full carry is 12¢.

The market inverts after May, since the May–July premium is the smaller one: Wrong. July is still above May; a smaller deferred premium is below full carry, not an inversion (which needs deferred under nearby).

Full carry = monthly carrying charge × calendar months between deliveries; a deferred premium can be at or below full carry in a normal market, and inversion requires deferred prices below nearby.

Answer: A

True: Correct. Through novation the clearinghouse steps between the original parties, so each clearing member looks to the clearinghouse, not to the other side, for performance.

False: Wrong. The statement is true; substitution of the clearinghouse as counterparty is what lets either side offset without finding the original counterparty.

Clearinghouse novation removes bilateral counterparty risk and makes offset possible with any other market participant.

Answer: A

It may not use hypothetical results, since it has over three months of actual results: Correct. NFA 2-29(c) bars hypothetical results for a trading program once the Member has at least three months of actual trading results for it; Quarry Hill has four months.

It may use them if it includes NFA's prescribed hypothetical disclaimer: Wrong. The disclaimer is required whenever hypothetical results are allowed, but it does not lift the three-month bar.

It may use them if they are shown net of all fees and commissions: Wrong. Net-of-fees presentation is a performance standard, not a substitute for the three-month bar.

It may use them alongside its four months of actual results: Wrong. Showing actual results is required with hypothetical results, but it does not permit them once three months of actual results exist.

Hypothetical results: prescribed disclaimer, accompanied by actual results, and not allowed once a program has three months of actual trading.

Answer: D

1. 1. Risk-based minimum = 8% × $20,000,000 = $1,600,000 (above $1,000,000, so it is the requirement).
2. 2. Early-warning test A = 150% × $1,000,000 = $1,500,000.
3. 3. Early-warning test B = 110% × $1,600,000 = $1,760,000.
4. 4. Early-warning level = greater of the two = $1,760,000.
5. 5. Check: notice is due within 24 hours of falling below $1,760,000; below $1,600,000 notice is immediate.

$1,000,000: Wrong. That is the dollar minimum, not the early-warning level, and here the risk-based test is higher anyway.

$1,500,000: Wrong. 150% of the $1,000,000 floor is one test, but the 110% risk-based test is higher and governs.

$1,600,000: Wrong. $1,600,000 is the minimum requirement itself; falling below it calls for an immediate notice, not an early warning.

$1,760,000: Correct. early warning = greatest of 150% of $1,000,000 ($1,500,000) or 110% of 8% of risk margin (110% × $1,600,000 = $1,760,000); the higher figure applies.

FCM early warning (1.12(b)): ANC below the greatest of 150% of the dollar minimum or 110% of the risk-based minimum; notify within 24 hours.