Ross Kenyon
Jul 23, 2018 · 7 min read

I’m lukewarm on standardized tests as you can read here, but the thing I do like about them is the ability to focus one’s mind in study. These Financial Industry Regulatory Authority (FINRA) exams for securities, commodities, forex, whatever, are just the beginning of an education in these fields. There really isn’t a substitute for living and breathing the topics in total vocational immersion. It is a solid way to get you to learn the basics and earn a credential in the process to maybe get your foot in the door in one of these fields, or if nothing else hopefully impress people on LinkedIn with your well-roundedness.

Nowadays some non-neglible portion of traders are in pajamas. Sorry, southwest tuxman.

What’s the point of these tests?

The Series 3 National Commodities Futures Examination is the required entry-level test for commodity and derivatives trading under the National Futures Association (NFA). If you wanted to get hired trading these assets with money not your own, you’d generally need a Series 3 to your name.

The Series 3 is similar to the Series 7 General Securities Representative Exam (GS) being the gateway into securities by being a “broker-dealer” under FINRA. If you want to trade securities for others, you’ll generally need a Series 7 first (as well as the Series 63 Uniform Securities Agent State Law Examination, which is for the state level rather than federal).

I ideally wanted both the Series 3 and the Series 7 because what the Nori carbon removal marketplace is doing with nonfungible digital assets and cryptocurrency involved exploring various permutations of securities, commodities, and derivatives. I wanted to understand the terminology, mechanics, and compliance issues related to all three of these areas. Digital assets have proven hard to regulate because they don’t always fit neatly into existing regulatory frameworks or conceptual understandings of financial instruments. It might still be some years until jurisprudence catches up with the bulk of the innovation, so I think it is a wise investment for blockchain industry folks to pay attention and learn about how these legacy assets are governed and how these financial instrument paradigms may apply to one’s project.

Unfortunately the Series 7 requires an applicant to have a sponsor, usually a big bank or financial institution that is a FINRA or SRO (Self-Regulatory Organization) member firm, so I skipped it for now. However, the Series 3 and Series 30 NFA Branch Manager Examination (and many others) do not require a sponsor, so I started my self-imposed training in commodities and derivatives.

I passed the Series 30 exam recently. It is the test one needs to pass in order to be a Branch Manager in commodities and derivatives trading, and thus focuses quite closely on the compliance issues and legal supervision of employees I wanted to wrap my head around in greater detail. My prep time was almost exclusively studying regulations through this deceptively slim but dense volume.

Enough exposition. Let’s get to how I studied for the Series 3.

How I Studied for the Series 3

There are really two main approaches here: trading immersion and booklearnin’.

Trading immersion pt. 1: trading simpler assets like stocks and crypto

For the Series 3, knowledge of trading is important and takes up a large part of the study guide I used. Reading about trading without any experience of it under your belt is simultaneously boring and daunting; a ghastly combo. If you’ve traded cryptocurrency, studied enough technical analysis (TA) to realize you should probably be trading more passively, and played with various features on exchanges for placing buys and sells (limit orders, stop loss orders, market orders, stop limit orders, et al) you probably have enough of a background to start appreciating how the legacy system works. If you come from trading stocks or bonds on your own, you’re probably also savvy enough with your foundation to build upon it.

This will be your life for awhile.

If you have no experience whatsoever in trading, you should get some. If you aren’t willing to put your own money up to do so (and who could blame you there), there are good simulators out there you can use to see how well you perform without trading real money. A friend of mine recommended thinkorswim, though I’ve never personally used it. Whatever you do, don’t do anything with money you can’t afford to lose; this is the notice that ‘this does not constitute investment advice’.

Trading immersion pt. 2: trading more challenging assets like derivatives

Trading cryptocurrency, commodities, and stocks are one thing… but have you ever traded derivatives? My guess is probably not. If you’re totally new to derivatives, I explain them briefly here and we discuss them in the respective episode of Nori’s Reversing Climate Change podcast. As our favorite line about them goes, “equities trading is about the distribution of ownership. Derivatives trading is about the distribution of risk.”

You’ll want to at least wrap your head around how futures and options trade. thinkorswim has futures trading, and I played with tastyworks for options trading. Unfortunately I don’t believe you can demo trade with tastyworks, so I funded account with $25 or so if memory serves. Again, if you do trade with real money as a way to learn, only do it with what you are willing to lose.

That was the fun part (I hope). How about we get to the staring at dead trees stained with ink…

Booklearnin’: read a study guide, write down things to remember, take and retake the practice test included until you ace it.

These study guides are a lot to wrap your head around. I always write in and mark up books as I read them. I also write down concepts, laws, regulations, etc. on a piece of paper to define and reference later as a quasi-flashcard exercise. These Momentrix books have practice tests in the back of the book. After I finished reading the entire thing I would take the test (marking my answers elsewhere), and retake it a few times before the test to make sure the questions I got wrong I had gone back and learned what I had missed about that topic and internalized that knowledge.

For me personally, the scariest part of the Series 3 practice questions in the study guide were those dealing with math, such as something like “at what point in this open futures contract will it be margin called?” or “here is a position at opening and closing. How much did the trade make?” I made sure to do a lot of practice for these math questions to make sure my head was in the right place as that isn’t always the most intuitive. I also spent a lot of effort learning various requirements that had specific timelines like “how soon does one need to report x?” or “how long does one need to keep y paperwork?”, etc. as these tripped me up in the quiz as well. The remainder I worked to make sure I had a conceptual grasp of how the entire process worked so I could reason through practice questions naturally.

I’m not sure I’ll take any more commodities or derivatives exams for the time being, as I think I may be experiencing a diminishing marginal return, but there is one other test I do have my eye on…

The Frontier: the Securities Industry Essentials (SIE) Exam

I really enjoy how Examzone does their books.

FINRA has been reconfiguring its testing structure for securities. As I mentioned, getting the Series 7 and Series 63 required being sponsored by an existing FINRA or SRO member in order to take it. It still does require this, but now they’re paring down the Series 7, and introducing a new test called the Securities Industry Essentials Exam which requires no sponsor. If you want to be a stock broker or be involved in trading at financial instutions you’ll need to take the SIE, then the Series 7 and Series 63 as more specialized proofs of knowledge once you line up a sponsor, e.g. you land a job conditional on passing the Series 7 and Series 63.

The SIE test is slated to open October 1st, 2018. I will take it soon after and do another guide for it. I bought the Examzone study guide for the SIE, which I prefer to Momentrix whenever I have the choice. I also got this ebook for a few bucks on Amazon and will peruse it as well despite not having great reviews so far.

Good luck if you decide to take any of these exams. Worst case scenario, you bought an expensive book and test (remember in high school when this torture was unpriced?) and used it to learn something hard to no effect but got to flex your deliberate practice muscle while making your LinkedIn just a little bit cooler.

Why this photo of Dubya at the CME? To abuse George Mallory, “Because it was there.”

If you enjoyed this post, please follow Nori on Facebook, Twitter, LinkedIn, and/or Instagram. We also have a podcast called Reversing Climate Change you can find in your podcast apps.

Nori

Nori is on mission to reverse climate change. This is our blog.

Thanks to Sandra Ponce de Leon

Ross Kenyon

Written by

Cofounder of Nori; host of the Reversing Climate Change and Carbon Removal Newsroom podcasts.

Nori

Nori

Nori is on mission to reverse climate change. This is our blog.

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