Welcome to Offsetting Contracts, Settlements, and Delivery, the unit that traces a futures position from the exit door all the way to the loading dock. Direction is the whole game here: who sells to close, who controls delivery, and who ends up holding the commodity all turn on which side of the contract a trader is on.
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:
- Liquidating Long and Short Positions: How a trader offsets by taking an equal and opposite position, why a long sells and a short buys back, and how offsetting drives open interest down
- First Notice Day: The first day delivery notices can flow, why the short controls the delivery decision, and what a long must do to stay out of delivery
- Trading in the Spot Month: Who is left as delivery nears, why liquidity thins, and why speculative position limits get tighter rather than looser
- The Clearinghouse Role in Delivery: How novation makes the clearinghouse the counterparty to every trade, why it guarantees financial performance but not the physical act of delivery, and how it assigns delivery to the oldest long
- Delivery Notices: What a delivery notice is, and the difference between a transferable notice a long can pass along and a non-transferable one a long is stuck with
- Physical Delivery and Warehouse Receipts: How a document of title (not the raw commodity) changes hands, and why cash-settled contracts have no delivery instrument at all
- Exchange for Physical (EFP): Why this privately negotiated, off-exchange swap of futures for the matching cash position is a permitted exception, not an illegal trade
Why This Matters
Series 3 candidates work with both commercial and speculative futures clients, and delivery mechanics run through the whole exam. One idea does most of the work: the short (seller) controls delivery, and the long (buyer) is the passive party who must offset ahead of time to avoid taking the commodity. Get the direction straight on every point and the rest of the unit follows.
Let's start with liquidating long and short positions.