One-Page Cheat Sheet

This is the whole book at a glance, ordered to match the NFA outline. It assumes you have already worked through the units; each line is a memory jog, not a first lesson. If a line reminds you that you forgot something, go back to that unit's rapid-fire sheet.

The exam is scored as two independent parts and you must clear 70% on each. Part 1 (Market Knowledge) is Chapters 1 to 7; Part 2 (Regulations) is Chapter 8 and is its own pass-or-fail gate.

Futures Trading Theory and Terminology (Part 1)

• General Theory: Futures markets exist so producers and users can lock in a price and transfer price risk to speculators who want the price move. Private forwards had two flaws: custom terms no third party could take on, and dependence on one counterparty's creditworthiness. Standardizing contract size, grade, delivery month, and location made contracts fungible so any long offsets any short, and inserting a clearinghouse that becomes buyer to every seller and seller to every buyer removed default risk, backed by margin as a performance bond. A futures contract is an obligation binding both the long and the short, not ownership, so it pays no dividends or interest, and a position is exited by an offsetting trade through the clearinghouse rather than by transferring title.
• The Futures Contract: A futures contract is standardized, exchange-traded, cleared, and marked to market daily, so counterparty default risk is minimal, while a forward is a private, customized agreement with no clearinghouse and full counterparty risk; a trader exits a futures position by offsetting, an equal and opposite trade in the same delivery month, since a different month creates a spread rather than a close, and the vast majority of positions are offset rather than delivered; the clearinghouse becomes buyer to every seller and seller to every buyer through novation, protected by margin and daily marking to market, with clearing members dealing directly and non-clearing members routing through them; on the rare delivery, the short delivers the basis grade or a substitute grade at a premium or discount and generally chooses which grade to deliver.
• The Structure of Futures Markets: A normal market is the default structure for a storable commodity: distant delivery months trade higher than nearby months because carrying charges (storage, insurance, and financing) pile up the longer the commodity is held, and the premium of a distant month cannot exceed full carry, a ceiling enforced by arbitrage rather than a floor; the cash price sits below futures. An inverted market reverses the whole pattern: nearby months trade higher than distant months because of a near-term supply shortage or urgent demand for immediate delivery, not carrying charges, and the cash price sits above futures. Normal, carrying-charge, premium, and contango name the same upward slope; inverted, discount, and backwardation name the same downward slope, and confusing the two directions is the single most-tested trap in the unit.
• Hedging Theory: A hedge takes a futures position opposite to a business's cash-market position so that a loss on one side is roughly offset by a gain on the other, and the goal is price certainty, not profit, which separates a hedger's commercial interest from a speculator's price bet. A business that already owns or is producing a commodity is long the cash market, fears a price decline, and sells futures to lock in an approximate selling price, a short hedge; a business that must buy a commodity later holds a short or anticipated cash position, fears a price rise, and buys futures to lock in an approximate purchase price, a long hedge, also called an anticipatory hedge. Hedging transfers price risk onto speculators and feeds price discovery and convergence rather than distorting the market.
• Speculative Theory: A speculator has no commercial interest in the commodity and accepts the price risk a hedger wants to shed, adding both risk-bearing capital and the liquidity, narrower bid-ask spreads and easy offset, that speculators primarily supply; leverage lets a small performance bond control a much larger contract, magnifying gains and losses symmetrically since the bond is not a down payment and losses are not capped at it, unlike loan-financed, interest-bearing securities margin. A long futures position loses when the price falls, a large but bounded loss since price can only reach zero, while a short position loses when the price rises, a theoretically unlimited loss since price has no ceiling; price volatility is neutral, the same movement creating both opportunity and risk, and it compounds with leverage to produce large swings on that small deposit.
• General Futures Terminology: This glossary covers the futures vocabulary the exam assumes: a Floor Broker executes for other people while a Floor Trader trades their own account, an FCM holds customer money while an Introducing Broker does not and clears through one, and a Commodity Pool Operator pools funds while a Commodity Trading Advisor advises for pay; basis means cash price minus futures price, carrying charges (storage, insurance, financing) push a normal market's distant months above nearby ones, and a forward is private and uncleared where a futures contract is standardized, exchange-traded, and guaranteed by a clearinghouse through novation. Long means bought and obligated to take delivery, short means sold and obligated to make delivery, and neither implies already owning the physical commodity; First Notice Day starts the delivery period, and churning is excessive, controlled trading done to generate commissions.
• General Options Terminology: These are options on futures: a call is the right to go long futures at the strike, a put the right to go short futures at the strike, and the Grantor or Writer, the same seller, takes the opposite obligation if assigned. Premium equals intrinsic value plus time value; only in-the-money options carry intrinsic value, a call above the strike and a put below it, with at-the-money the shared zero case. A straddle pairs a call and a put at the same strike; a strangle spreads the strikes apart for a cheaper cost and a larger required move. A synthetic long futures (long call, short put), a synthetic short futures (short call, long put), and a conversion all rest on the same fixed relationship among a call, a put, and the futures.

Margins, Premiums, Price Limits and Settlements (Part 1)

• Margin Requirements: Futures margin is a performance bond posted by both the long and the short, never a loan, so no interest accrues and no ownership passes; the exchanges, through the clearinghouse, set the initial requirement to open a position and a lower maintenance requirement to keep it open, and a margin call triggered by equity falling below maintenance must restore equity all the way to the initial level, not merely to maintenance, while excess equity above initial may be withdrawn but never below it; a bona fide hedger's offsetting cash position and a spread trader's offsetting futures legs each cut net risk, so both post less margin than an outright speculator holding the same exposure.
• Options Premiums: An option's premium always equals intrinsic value plus time value, where a call's intrinsic value is the futures price minus the strike and a put's is the strike minus the futures price, neither ever falling below zero; time value, the price of waiting for more intrinsic value, decays to zero by expiration and peaks at-the-money rather than deep in-the-money; delta measures how much the premium moves for a one-unit move in the underlying, running about 0 to plus 1 for a call and 0 to minus 1 for a put, and it doubles as a dynamic hedge ratio; a quoted premium becomes a dollar cost only after multiplying by the contract's own point value.
• Price Limits: A daily price limit caps how far a futures price may move from the prior session's settlement price, blocking prints beyond the boundary while trading continues at or within it, and a market locks only when the imbalance leaves no willing counterparty there, trapping a short in a locked-limit-up market or a long in a locked-limit-down market until the imbalance eases or the exchange expands the limit; exchanges typically widen limits and raise margin together after limit sessions, then ease both back once volatility subsides; a circuit breaker is a separate, coordinated, market-wide halt triggered by a percentage move in the index rather than a price distance, with the first two tiers pausing and resuming and only the most extreme tier closing the market for the day.
• Offsetting Contracts, Settlements and Delivery: Most futures positions close by offsetting, a long selling or a short buying back an equal and opposite contract, which drops open interest only when both sides are closing; the short controls whether, when, at what grade, and where to deliver, so a long who wants no part of delivery must offset before first notice day, and speculative position limits tighten as the spot month nears; the clearinghouse, standing between every buyer and seller through novation, guarantees financial performance but never the physical act of delivery, matching a delivering short to the oldest long and letting a transferable notice be retendered while a non-transferable one sticks; and physical delivery moves a warehouse receipt or shipping certificate, never the commodity itself, while an exchange for physical is a permitted, reportable exception that swaps futures for cash positions at once.
• Options Exercise, Assignment and Settlement: Exercising an option on a future converts it into a futures position at the strike, not the physical commodity or a cash payout, giving a call holder a long position and the assigned writer a short one, and a put holder a short position and the assigned writer a long one; assignment is picked by the clearinghouse, usually at random though some product families use a pro rata method, and neither party chooses it; before exercise the buyer posts no margin while the writer posts performance-bond margin, but after exercise and assignment both sides post futures margin subject to daily variation margin; American-style options exercise anytime up to expiration while European-style options exercise only at expiration, with an in-the-money option typically auto-exercised and an out-of-the-money one expiring worthless.

Order Types, Customer Accounts and Price Analysis (Part 1)

• Basic Order Types: A market order fills immediately at the best price, guaranteeing execution, not price; a plain stop rests until triggered and then becomes a market order (fill, not price, since a buy stop sits above the market and a sell stop sits below), while a stop-limit uses the same placement but becomes a limit order instead, guaranteeing a price or better at the risk of no fill if the market gaps past it; a Market-if-Touched order mirrors the stop, resting on the opposite side of the market (buy below to catch a dip, sell above to catch a rally) and becoming a market order once touched; and on electronic markets, orders match in a central limit order book by price-time priority, with a stop triggered either natively by the exchange or synthetically by the broker.
• Additional Orders: Good Till Canceled rests across sessions until it fills or the customer cancels it, while the default day order auto-expires at the close of its own session unless marked GTC; Fill-or-Kill demands an immediate, complete fill or full cancellation with no partial fills, unlike immediate-or-cancel (fill-and-kill), which allows partial fills, and all-or-none, which can rest and wait for full size; Market on Close is a market order timed to the closing range, guaranteeing participation but not the official settlement price; and One Cancels the Other links two orders, typically a profit-target sell limit above the market with a protective sell stop below it, so that a fill on either leg automatically cancels the other.
• Technical Price Analysis: Technical analysis reads a market's price, volume, and open-interest history on the assumption that price discounts all information and patterns repeat; bar, line, and candlestick charts plot open, high, low, and close on a time axis, while point-and-figure ignores time and plots Xs and Os by price movement alone; an uptrend line under the lows acts as support and a downtrend line over the highs acts as resistance, and once either breaks its role reverses, with a congestion area's breakout revealing whether accumulation or distribution was underway; a gap's location (breakaway, runaway, or exhaustion) tells the story more than its volume; and rising price confirmed by rising volume and open interest marks a healthy trend, while falling open interest under a rally often signals mere short covering.
• Fundamental Price Analysis: A supply shock (war, embargo, a producing region offline) lifts commodity prices while a demand shock (recession, a lost export market) lowers them even with supply intact, and a weaker dollar raises dollar-denominated prices while a stronger dollar lowers them; inelastic supply or demand, including short-run farm supply, means price does all the adjusting, which is why agricultural and energy commodities swing so hard; a nonrecourse Commodity Credit Corporation loan lets a producer forfeit the crop below the loan rate, making that rate an effective price floor, while releasing forfeited government stocks pressures prices down; and because the crop year runs harvest to harvest, old-crop months price off stockpiles while new-crop months price off the expected harvest, so a shock to one does not automatically move the other.
• Interest Rate Analysis: Interest-rate futures prices move opposite interest rates, so rates rising is bearish (go short) and rates falling is bullish (go long); a normal yield curve slopes up with long-term rates higher and signals expansion, an inverted curve slopes down with short-term rates higher and often warns of recession, and a flat curve signals transition; the Federal Reserve tightens rates upward by selling securities, raising the discount rate it charges banks, or raising reserve requirements, and eases them downward by doing the reverse, chaining straight to lower or higher interest-rate futures prices; and fiscal policy, taxing and spending, moves rates only indirectly, mainly through the upward pressure heavy government borrowing puts on the demand for funds.

Hedging and Basis Calculations (Part 1)

• Short Hedging and Long Hedging: A hedge on the same underlying does not lock a flat price, it swaps price risk for basis risk (cash minus futures). The short hedger, who owns the physical, is long the basis and benefits when basis strengthens, becoming more positive or less negative; the long hedger, who will buy later, is short the basis and benefits when basis weakens. An anticipatory hedge protects a cash position not yet held, such as a growing crop or an unfilled purchase need, and it does not flip the futures direction: a future seller still sells futures and a future buyer still buys futures, whether or not the physical is in hand today. Read the cash position first, and both the futures leg and the basis label follow without guessing.
• The Basis: Basis is always cash price minus futures price: positive is "over," negative is "under," and reversing the order flips every conclusion. A strengthening basis (more positive or less negative) helps the short hedger, who is long the cash commodity; a weakening basis (more negative or less positive) helps the long hedger, who will buy later, and both directions describe change, not sign. Local supply and demand, carrying charges, transportation, deliverable grade, and time to expiration all drive the number, and it narrows toward zero as delivery nears. For financial futures the basis is a cost-of-carry story: coupon income minus financing cost, positive when financing sits below the yield and negative when an inverted curve puts financing above it.
• Hedging Calculations: A hedge's net result is always the cash-market result plus the futures-market result, and a losing futures leg by itself does not mean the hedge failed since the two legs are designed to offset. A short futures gain is the initial futures price minus the buy-back price; a long futures gain is the sell price minus the initial buy price. The same net collapses to one formula: net price equals the initial futures price plus the ending basis, with the seller adding a futures gain to the cash sale and the buyer subtracting it from the cash purchase. Anchor every calculation to the ending basis, not the opening one, and apply a commission last, lowering the seller's net or raising the buyer's net.
• Examples: The same framework runs every market in this catalog: net price equals the initial futures price plus the ending basis, and the hedger direction is set by the future cash transaction, never by the market. A natural short hedger already owns or will produce the commodity, fears a price decline, and sells futures; a natural long hedger will buy later, fears a price rise, and buys futures. Grains, livestock, softs, metals, energy, lumber, Treasuries, and currencies can involve physical delivery, with the short choosing the cheapest-to-deliver Treasury issue, while lean hogs, feeder cattle, 3-month SOFR, municipals, and stock indices settle in cash to an index. A financial hedger is protecting a rate or price level, not a warehoused good.

Spreading (Part 1)

• Spread Trading: A spread is a long position in one futures contract and a short in a related one held at the same time, quoted and filled as a single price differential rather than as two outright prices, so a single spread order eliminates legging risk and earns lower margin than two separate outright positions; the spreader profits from a change in that differential, not from market direction, under the one invariant that the long leg must outperform the short leg, whether the trader is positioned for the gap to widen or to narrow, and the normal market (deferred over nearby, reflecting carrying charges) versus the inverted market (nearby over deferred, from a supply shortage) tells the trader which leg to make long and which to make short.
• Common Types of Spreads: A carrying charge spread is long one delivery month and short another month of one commodity, priced in a normal market with the deferred over the nearby by roughly the cost of carry, a gap capped near full carry but with no floor once nearby supply tightens toward inversion; bull and bear are directional labels on that spread, with a bull spread always long the nearby, profiting when the gap narrows with no theoretical cap, and a bear spread always short the nearby, profiting when the gap widens up to about full carry, a rule built on physical commodities that can reverse for financial futures like stock-index contracts; an intermarket spread instead pairs two different but related commodities, usually one delivery month, with the gap driven by their economic relationship, such as the soybean crush, not storage cost.

Speculating in Futures (Part 1)

• Profit and Loss Calculations for Speculative Trades: Gross profit on a speculative futures trade is the price change times the contract multiplier times the number of contracts, with a long using exit minus entry, a short flipping to entry minus exit, and a spread using only the change in the spread; net profit then subtracts the round-turn commission, charged once per contract for the whole trade, which shrinks a gain and enlarges a loss; and return on margin equity divides that net profit by the initial margin actually deposited, not the full contract value, which is why a modest move posts a large percentage, since futures margin is a performance bond carrying no interest.
• Trading Applications: Match the position to the stated outlook: bullish goes long futures or buys a call, bearish goes short futures or buys a put, and neutral fits a spread rather than an outright position. Risk tolerance then picks the vehicle: outright futures carry full exposure, with a short's loss theoretically unlimited, while a bought option caps the worst case at the premium. Orders do two jobs, initiating and protecting: a sell stop below the market protects a long, a buy stop above protects a short, a plain stop guarantees a fill but not a price, and a stop-limit guarantees a price but may not fill. Place the protective stop at entry, not after the market moves against you.

Options Strategies: Hedging, Speculating and Spreading (Part 1)

• Option Theory: Every option position is one of two roles: the buyer pays the premium for a right and can lose no more than that premium, though losing it in full is routine, while the return runs large, unlimited on a long call and capped at strike minus premium on a long put; the writer collects the premium as the maximum possible gain but carries an open-ended obligation, unlimited on a naked short call because the future has no price ceiling and bounded at strike minus premium on a naked short put because the future can only fall to zero, and only the buyer's risk is prepaid and margin-free while the writer must post a performance bond.
• Option Hedge Strategies and Calculations: A hedger who already knows the futures hedge can instead buy an option for the same protection at the cost of a premium: a seller who is long the cash and fears a decline buys a put, setting a floor at strike minus premium, while a buyer who is short the cash and fears a rise buys a call, setting a ceiling at strike plus premium, and either way the option's maximum loss is the premium paid. A futures hedge locks the price both ways for free but surrenders any favorable move, while the option protects only the adverse direction and keeps the favorable one, so an option expiring worthless because the market moved favorably is the good outcome, not a failure.
• Option Speculative Strategies and Calculations: A bullish speculator can buy a call instead of going long the future, and a bearish speculator can buy a put instead of shorting it, each capping risk at the premium, with breakeven at strike plus premium for the call and strike minus premium for the put, and return on equity dividing by that premium since no margin is posted. Adding a bought call to a short future manufactures a synthetic long put, and adding a bought put to a long future manufactures a synthetic long call, the protective put, each synthetic keeping the futures leg's original direction. Writing a call against a long future instead, the covered call, collects the premium, caps the upside at the strike, cushions only part of a decline, and is margined rather than sized by the bare premium.
• Option Spread Strategies and Calculations: The four verticals split by cash flow and direction: call bull (buy lower, sell higher call) and put bear (buy higher, sell lower put) are debits that profit as the strike gap widens; call bear (sell lower, buy higher call) and put bull (sell higher, buy lower put) are credits that profit as the gap narrows. Maximum profit plus maximum loss always equals the strike difference. A calendar spread instead sells a near-term option and buys a longer-dated one at the same strike, trading time decay, direction-neutral and best near the strike. A conversion pairs long futures with a synthetic short future from options when the call is overpriced; a reversal mirrors it, pairing short futures with a synthetic long future, when the call is underpriced.

Regulations (Part 2)

• General Registration and Account Rules: The Commodity Futures Trading Commission registers seven categories of futures participant, and the National Futures Association grants membership and polices conduct, so a public-facing firm needs both; the money test separates the Futures Commission Merchant, which holds customer funds, from the Introducing Broker, which does not; a Commodity Trading Advisor escapes registration only by advising fifteen or fewer persons in twelve months while never marketing to the public; before a customer's first trade, the firm must know the customer, deliver the risk disclosure verbatim, and paper a discretionary account with written authorization, supervision, and an associated person's two years of experience; position reporting catches speculators and hedgers alike, while a speculative limit is a hard cap that only a bona-fide hedge exemption relieves.
• FCM and IB Regulations: An Introducing Broker never holds customer money, so a guaranteed IB borrows one FCM's financial strength and keeps no capital of its own, while an independent IB stands alone with its own $45,000 net capital and may use several FCMs, against the Futures Commission Merchant's $1,000,000; audited reports come due in 60 days for the FCM and 90 days for the independent IB, and only the carrying FCM ever collects and holds margin, a performance bond rather than a loan; every customer order gets an immediate receipt stamp to the nearest minute, and a commodity option order also gets a second stamp for the time transmitted for execution, while the executing party records the execution itself; promotional material must avoid misleading claims, flag hypothetical results, and disclose the true cost of trading.
• CPO and CTA Regulations: A Commodity Pool Operator and a Commodity Trading Advisor both hand a prospect a Disclosure Document, timed no later than the subscription or advisory agreement and, for the advisor, backed by a signed acknowledgment before that agreement, and the NFA can discipline either one for breaking the CFTC's own disclosure, reporting, and recordkeeping rules; the Document goes stale after 12 months while its performance figures need a fresher 3-month or 60-day look, a pool's Document adds a fee-based break-even table, and a materially amended Document needs a 48-hour cushion; each keeps its own records available to regulators, may bunch client orders but must allocate the fills by a pre-set, objective, verifiable method, and must balance any profit claim with an equally prominent risk-of-loss statement.
• Arbitration Procedures: A futures customer with a money claim against a firm chooses among NFA arbitration, CFTC reparations, and court, and a firm cannot make signing a pre-dispute arbitration agreement a condition of opening an account; a customer who voluntarily signs one gives up suing in court but keeps the right to elect CFTC reparations instead, even up to 45 days after the firm gives notice it intends to arbitrate, while an eligible contract participant can be required to waive both. Both specialized forums run on a two-year filing clock, arbitration from discovery and reparations from accrual, and an NFA arbitration award is essentially final while a CFTC reparations order can be appealed to a U.S. Court of Appeals.
• NFA Disciplinary Procedures: A disciplinary case begins when NFA staff investigate and report to the Business Conduct Committee, which either closes the matter with a non-disciplinary warning letter or issues a Complaint that a Hearing Panel, a separate body, decides after a hearing or an accepted settlement, with an adverse decision appealable to the Appeals Committee within 15 days and, after that, reviewable by the CFTC; a Member Responsibility Action lets the NFA President, with Board or Executive Committee concurrence, act first in an emergency and hold the hearing afterward; penalties, from censure up to expulsion of a Member or a bar of an Associate, attach only once a case concludes, with fines reaching $500,000 per violation and nonpayment risking summary suspension after seven days' notice.
• CFTC Commodity Exchange Act Enforcement: The CFTC's Division of Enforcement investigates and recommends fraud, manipulation, spoofing, and similar violations of the Commodity Exchange Act, but only the Commission can authorize a case, which then proceeds as a civil administrative proceeding, with cease and desist orders and registration sanctions, or as a civil federal-court action, with injunctions, ex parte asset freezes, a receiver, and disgorgement, both carrying civil monetary penalties equal to the greater of a set amount or three times the violator's gain plus restitution to harmed customers; a willful violation is instead a felony that the CFTC refers to the Department of Justice, which alone can seek the fixed criminal maximum of a $1,000,000 fine and 10 years in prison, since the CFTC's own remedies never include imprisonment.