Series 3 – The National Commodities Futures Test Series 3 – The National Commodities Futures Test Futures Trading Mechanics & Market Structure 1 — Questions and Answers
Question 1: What is the minimum price fluctuation of a futures contract called?
- Tick (Correct answer)
- Basis point
- Pip
- Spread
Correct answer: Tick
A tick is the smallest allowable price movement for a given futures contract as defined by the exchange.
Question 2: Which type of futures order instructs the broker to execute a trade at the best available price immediately?
- Market order (Correct answer)
- Limit order
- Stop order
- MIT order
Correct answer: Market order
A market order directs the broker to buy or sell at whatever price is currently available in the market.
Question 3: Initial margin in a futures account is best described as:
- A good-faith deposit required to open a position (Correct answer)
- A loan from the broker to the customer
- The full contract value paid upfront
- Interest charged on open positions
Correct answer: A good-faith deposit required to open a position
Initial margin is a performance bond deposit required by the exchange to initiate a futures position.
Question 4: When a futures position is marked to market and the account falls below the maintenance margin level, the trader receives a:
- Margin call (Correct answer)
- Stop-out notice
- Variation credit
- Position limit warning
Correct answer: Margin call
A margin call requires the trader to deposit additional funds to restore the account to at least the initial margin level.
Question 5: An open interest figure of 50,000 in a futures market means:
- There are 50,000 outstanding long and short contracts combined (Correct answer)
- 50,000 contracts were traded that day
- 50,000 contracts were settled in cash
- 50,000 traders hold positions
Correct answer: There are 50,000 outstanding long and short contracts combined
Open interest counts the total number of outstanding contracts that have not been settled or offset.
Question 6: Which futures market participant primarily enters the market to profit from price movements without intending to take delivery?
- Speculator (Correct answer)
- Hedger
- Arbitrageur
- Commercial producer
Correct answer: Speculator
Speculators assume price risk to profit from anticipated market moves and have no commercial interest in the underlying commodity.
Series 3 – The National Commodities Futures Test Series 3 – The National Commodities Futures Test Futures Trading Mechanics & Market Structure 1
What is the minimum price fluctuation of a futures contract called?