Free National Commodity Futures Examination Practice Questions

Sample Practice Questions

Try these 10 sample questions from the National Commodity Futures Examination practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1A trainee tracing early U.S. grain-market development encounters the Chicago Board of Trade's early 'to-arrive' agreements. What type of agreement were these?

   1. A. Forward contracts for later delivery
   2. B. Options granting a right to purchase
   3. C. Swaps exchanging periodic payments
   4. D. Shares representing corporate equity

   Answer: A

   Explanation: The CFTC states, "Forward or “to-arrive” contracts begin trading at the CBOT almost immediately." These commercial forward agreements were predecessors of standardized futures.

   Reference: US Futures Trading and Regulation Before the Creation of the CFTC — Chronology, April 3, 1848 and February 18, 1859

2. 2A customer opens a commodity futures position and asks whether the margin deposit purchases part of the commodity. How should the deposit be characterized?

   1. A. A partial payment toward acquiring the commodity
   2. B. A performance bond securing contract obligations
   3. C. A premium purchasing a limited-loss contract right
   4. D. A commission compensating the executing broker

   Answer: B

   Explanation: The CFTC states, "Margins in the futures markets are not down payments like stock margins, but are performance bonds designed to ensure that traders can meet their financial obligations". The deposit secures performance.

   Reference: The Economic Purpose of Futures Markets and How They Work — Margin

3. 3A customer prioritizes immediate futures execution at the obtainable market price and specifies no maximum purchase price. Which order fits that instruction?

   1. A. Market order
   2. B. Limit order
   3. C. Stop-limit order
   4. D. Market-if-touched order

   Answer: A

   Explanation: A market order buys or sells "at whatever price is obtainable at the time it is entered". It prioritizes execution rather than a specified price or future trigger.

   Reference: Futures Glossary — Market Order

4. 4A farmer sells wheat futures after planting but before harvesting the wheat crop that will later be marketed. For which physical-market transaction does this short futures position act as a temporary substitute?

   1. A. A sale of grain at a later date
   2. B. A purchase of grain at a later date
   3. C. A sale of grain at the hedge date
   4. D. A purchase of grain at the hedge date

   Answer: A

   Explanation: A hedger may use futures "as a temporary substitute for a cash transaction that will occur later." The growing crop will be sold after harvest, so the short futures anticipates a later grain sale. The other alternatives reverse the sale/purchase direction, change it to the hedge date, or do both.

   Reference: Futures Glossary — Hedger

5. 5A trader enters opposing futures positions to profit from a change in their price relationship rather than simply from a rise in both prices. What is the trade's principal exposure?

   1. A. The relative movement between the two futures prices
   2. B. The sum of the two futures contract prices
   3. C. The full price movement of two long positions
   4. D. The full price movement of two short positions

   Answer: A

   Explanation: A spread seeks "a profit from a change in price relationships." Opposite legs make the relative move, rather than the common outright move, central to performance.

   Reference: Futures Glossary — Spread (or Straddle)

6. 6A speculator buys a futures contract covering 1,000 units at $62 and sells it at $64.50. Ignoring costs, what is the gross result?

   1. A. A $2,500 profit
   2. B. A $2,500 loss
   3. C. A $250 profit
   4. D. A $250 loss

   Answer: A

   Explanation: A futures contract fixes the price and quantity: "The price and the amount of the commodity are fixed at the time of the agreement". The long gains ($64.50 − $62) × 1,000 = $2,500.

   Reference: Basics of Futures Trading — Basics of Futures Trading, opening definition

7. 7A customer pays $900 for a stock-style-margined futures option and $50 in transaction costs, then leaves it unexercised. What is the maximum loss on this option purchase?

   1. A. $50
   2. B. $850
   3. C. $900
   4. D. $950

   Answer: D

   Explanation: The disclosure states, "the risk of loss is limited to the purchase price and transaction costs." The total amount at risk on the unexercised option is $900 + $50 = $950.

   Reference: 17 CFR § 33.7—Disclosure — § 33.7(b), item (4), Margin requirements

8. 8An NFA Member introduces a new individual customer's ordinary commodity futures account. Under Rule 2-30, when must the required risk disclosure be provided relative to first opening the account?

   1. A. At or before the account first opens
   2. B. Within one business day after the first trade
   3. C. With the first monthly account statement
   4. D. At the first annual customer-information review

   Answer: A

   Explanation: Rule 2-30(b) uses "at or before" for the first account opening. Disclosure must precede or accompany that event rather than follow the first trade or a later review.

   Reference: NFA Compliance Rule 2-30—Customer Information and Risk Disclosure — Rule 2-30(b), first sentence

9. 9An associated person explains why a common share differs from a commodity futures position. What interest does the common share represent?

   1. A. An obligation to deliver a commodity
   2. B. An ownership interest in a corporation
   3. C. A right to exercise a futures option
   4. D. An obligation to repay borrowed funds

   Answer: B

   Explanation: The glossary describes a security as "a transferable instrument representing an ownership interest in a corporation (equity security or stock) or the debt of a corporation, municipality, or sovereign." Common stock represents equity ownership, rather than a futures delivery obligation or corporate debt.

   Reference: Futures Glossary — Security

10. 10A broker requires $2,400 initial margin per grain futures contract. A customer opens three contracts, with no offsets or credits. What total initial margin is required?

    1. A. $800
    2. B. $2,400
    3. C. $4,800
    4. D. $7,200

    Answer: D

    Explanation: The CFTC example explains, "A farmer who sells 10 contracts must deposit at least $6,500" when margin is $650 per contract. Applying the same multiplication gives 3 × $2,400 = $7,200.

    Reference: The Economic Purpose of Futures Markets and How They Work — Margin Example