Welcome to General Theory: the first unit of the Series 3 exam and the foundation everything else in futures builds on. Before you can hedge, spread, or speculate, you need to know why futures markets exist at all and how a futures contract differs from the stocks and bonds you may already know.
Exam Weight: Part 1 spans ~71% of the exam across Chapters 1-7 combined; the National Futures Association (NFA) does not publish per-unit weights.
Video Resources
What You'll Learn
In this unit, you'll cover:
- Development of the Futures Market: The chain of reasoning that turned private, custom forward deals into standardized, exchange-traded futures contracts, and why a clearinghouse was inserted to guarantee that both sides perform
- Futures and Securities Compared: What a futures contract actually represents (a two-sided obligation, not ownership), how its rights and obligations differ from a stock or bond, and why "selling" a futures position cancels an obligation rather than transferring title to an asset
Why This Matters
Series 3 candidates are training to work as futures professionals: futures commission merchants, introducing brokers, commodity pool operators, and commodity trading advisors. Every one of those roles rests on two ideas from this unit:
- A futures contract binds both the buyer and the seller to perform, which is what makes it different from a stock a holder can simply sell
- The clearinghouse standing behind every trade is what lets a trader exit by an offsetting trade instead of chasing down the original counterparty
The exam tests the reasoning here as concepts, not as a history lesson. Focus on why each step happened and how the pieces fit together.
Let's start with the problem futures markets were built to solve, and how the market evolved to solve it.