Series 3 – The National Commodities Futures Test Futures Trading Mechanics & Market Structure Flashcards
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What is the purpose of variation margin in futures trading?
Answer: To settle daily mark-to-market gains and losses
Variation margin is the daily cash flow that reflects the gain or loss from marking open futures positions to current market prices.
Position limits in futures markets are designed primarily to:
Answer: Prevent excessive speculation and potential market manipulation
Position limits restrict the number of contracts a single trader can hold to prevent undue concentration of market power.
What is a 'notice of intention to deliver' in a physically settled futures contract?
Answer: A document issued by a short position holder indicating intent to make delivery
The short position holder issues this notice through the clearinghouse to begin the physical delivery process.
When futures prices for more distant months are higher than nearby months, the market is said to be in:
Answer: Contango
Contango describes a futures market where deferred delivery months trade at a premium over nearby months, reflecting carrying costs.
A commodity trading advisor (CTA) is required to register with which regulatory body?
Answer: CFTC and NFA
CTAs must register with the CFTC and become members of the NFA before soliciting trading discretion over client funds.
What does 'exchange for physicals' (EFP) allow futures traders to do?
Answer: Exchange a futures position for an equivalent cash market position
An EFP transaction allows two parties to simultaneously transfer a futures position and an offsetting cash commodity position.
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Sources & references
Exam facts on this page (fees, format, dates, passing scores) are checked against these official sources; the date is our last check. Editorial policy
- finra.org — Score release, test dates, test delivery, fees, exam format, passing score · verified Oct 2026
- nfa.futures.org — Eligibility, score validity · verified Oct 2026