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Canadian Commodity Supervisor’s Qualifying Examination (CCSE) Free Preview
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Which of the following is/are true regarding lock-limit move?
I. It means that there is an overabundance of buyers (for “lock limit up”) versus sellers at the limit-up price.
II. It means that there is an overabundance of both sellers and buyers at the limit-up price.
III. It means that there is an overabundance of sellers (for “lock limit up”) versus buyers at the limit-up price.
II. It means that there is an overabundance of buyers (for “lock limit down”) versus sellers at the limit-down price.
A lock-limit move means that there is an overabundance of buyers (for “lock limit up”) versus sellers at the limit-up price, or that there is an overabundance of sellers (for “lock limit down”) at the limit-down price.
A lock-limit move means that there is an overabundance of buyers (for “lock limit up”) versus sellers at the limit-up price, or that there is an overabundance of sellers (for “lock limit down”) at the limit-down price.
What is the smoothing factor for 20-day SMA?
For a 20-day SMA, the SF is 2 divided by 21 = .096.
For a 20-day SMA, the SF is 2 divided by 21 = .096.
How is buffered entry price calculated for generating a sell signal?
To determine the buffered entry price, you take the low price of the setup bar, multiply by .05%, and subtract from the low price. This number is your buffered
order entry price.
To determine the buffered entry price, you take the low price of the setup bar, multiply by .05%, and subtract from the low price. This number is your buffered
order entry price.
Which of the following statements is/are true for reverse pivot?
I. It occurs when a setup that is not triggered leads to a confirmed signal in the opposite trend direction.
II. Reverse pivots more often not lead to powerful signals with above-average reward-to-risk ratios.
III. It occurs when a setup that is triggered leads to a confirmed signal in the opposite trend direction.
IV. Reverse pivots more often lead to powerful signals with below-average reward-to-risk ratios.
A reverse pivot occurs when a setup that is not triggered leads to a confirmed signal in the opposite trend direction. My experience has been that reverse pivots
more often than not lead to powerful signals with above-average reward-to-risk ratios.
A reverse pivot occurs when a setup that is not triggered leads to a confirmed signal in the opposite trend direction. My experience has been that reverse pivots
more often than not lead to powerful signals with above-average reward-to-risk ratios.
If heating oil has a total OI of 10,000 contracts, and the next day it rises to 10,100. Then which of the following statement is/are true about OI?
I. This means 100 new contracts were created by 10 new buyers and 10 new sellers were added.
II. 10 new net buyers and sellers of 10 contracts each.
III. The market has 10,000 contracts’ worth of shorts and 10,100 contracts’ worth of longs at the end of the day.
IV. The short and long interests are always the same on any particular day.
What indication is given for the market if prices are in a downtrend and OI is rising?
I. This is a bearish sign.
II. Bulls are adding to their positions, and they are the ones making money.
III. Weaker longs are possibly being stopped out and new sellers are taking their place.
IV. As the market continues to fall, the shorts get stronger, and the longs get weaker.
If prices are in a downtrend and OI is rising, this is a bearish sign
The bears are in charge of this case. They are adding to their positions, and they are the ones making money. Weaker longs are possibly being stopped out, however, new buyers are taking their place. As the market continues to fall, the shorts get stronger, and the longs get weaker. Another way to look at the first two rules is that, as long as the OI is increasing in a major trend, it will have the financing it needs to draw upon and prosper.
If prices are in a downtrend and OI is rising, this is a bearish sign
The bears are in charge of this case. They are adding to their positions, and they are the ones making money. Weaker longs are possibly being stopped out, however, new buyers are taking their place. As the market continues to fall, the shorts get stronger, and the longs get weaker. Another way to look at the first two rules is that, as long as the OI is increasing in a major trend, it will have the financing it needs to draw upon and prosper.
Which of the following statements is/are true for overbought?
I. It means the market is too high.
II. Its running out of market makers.
III. It’s about to fall of its own weight.
IV. The market is too low, running out of sellers.
Overbought basically means the market is too high in the respect that it’s running out of buyers; in effect, it’s about to fall of its own weight. Oversold is the antonym: The market is too low, running out of sellers (at least for the current time period), and ready for a bounce.
Overbought basically means the market is too high in the respect that it’s running out of buyers; in effect, it’s about to fall of its own weight. Oversold is the antonym: The market is too low, running out of sellers (at least for the current time period), and ready for a bounce.
What are the features of the trendline chart tool?
I. In an uptrend, the market tends to make lower lows and higher highs.
II. A downtrend is characterized by lower highs and higher lows.
III. A trendline is drawn on the chart we analyze along the tops or bottoms of the price bars in the direction of the significant trend.
IV. In a bearish market, the trendline is drawn by connecting a straight line that connects higher lows.
The trendline is perhaps the most popular of all chart tools. Remember that if you can determine the trend of the market, you’ll make money. This is what the trendline is designed to do: determine the trend of the market and keep you with the trend until it changes.
Trendlines basically are one of two types: the up trendline and the down trendline. In an uptrend, the market tends to make higher lows and higher highs. A downtrend is characterized by lower highs and lower lows. You can prove to yourself that markets move in trends by simply looking at charts and doing an “eyeball.” Note how the moves of significance are characterized by a series of higher highs/higher lows or lower highs/lower lows.
A trendline is drawn on the chart you are analyzing along the tops or bottoms of the price bars in the direction of the significant trend. In a bull or rising market, the trendline is drawn by connecting a straight line that connects higher lows. At least two points are necessary, but I recommend a minimum of three to add validity.
The trendline is perhaps the most popular of all chart tools. Remember that if you can determine the trend of the market, you’ll make money. This is what the trendline is designed to do: determine the trend of the market and keep you with the trend until it changes.
Trendlines basically are one of two types: the up trendline and the down trendline. In an uptrend, the market tends to make higher lows and higher highs. A downtrend is characterized by lower highs and lower lows. You can prove to yourself that markets move in trends by simply looking at charts and doing an “eyeball.” Note how the moves of significance are characterized by a series of higher highs/higher lows or lower highs/lower lows.
A trendline is drawn on the chart you are analyzing along the tops or bottoms of the price bars in the direction of the significant trend. In a bull or rising market, the trendline is drawn by connecting a straight line that connects higher lows. At least two points are necessary, but I recommend a minimum of three to add validity.
Which of the following statements is/are true regarding trend channels?
I. A channel is identified by constructing a line parallel to the major trendline.
II. If a market is trending higher and an up trendline has been constructed, the top line of the channel is drawn by connecting progressive lows. In a downtrend, a parallel to the down trendline is drawn, connecting progressive highs and a channel is born.
III. As long as the market remains within the channel, for the most part, the market is behaving normally during a trending type period.
IV. Nimble traders look to buy on the trendline and sell toward the upper channel line (assuming that they’re in an uptrend). Active traders might also look to reverse at the channel lines.
Trend channels
Prices in a classic trend commonly tend to trade roughly within a channel. A channel is identified by constructing a line parallel to the major trendline. If a market is trending higher and an up trendline has been constructed, the top line of the channel is drawn by connecting progressive highs. In a downtrend, a parallel to the down trendline is drawn, connecting progressive lows and a channel is born (see Figure 8.5). As long as the market remains within the channel, for the most part, the market is behaving normally during a trending type period. Nimble traders look to buy on the trendline and sell toward the upper channel line (assuming that they’re in an uptrend). Active traders might also look to reverse at the channel lines, but this generally is not recommended, because they would be fighting the trend.
Markets will eventually trade outside the bounds of the channel. This can be a significant clue to subsequent market action. The general rule of thumb is that when a market trades above the upper channel line (in an uptrend) or below the lower channel line (in a downtrend), odds are that the market is entering an accelerated phase in the direction of the major trend. In other words, a significant change in the normal supply and demand balance has taken place. With bona fide breakouts of channels, the market tends to move faster, with price action becoming more dramatic. Stops can be tightened, positions can be pyramided, and your “antenna should be up” for any signs of a subsequent trend reversal. The accelerated phase of any market can be the most profitable and most exciting time to play, but it also can be the shortest. Don’t fight it; go with it but remain alert. If acting right, after it has broken out, the market should not fall back into the channel because this would be the place to exit and reevaluate.
Trend channels
Prices in a classic trend commonly tend to trade roughly within a channel. A channel is identified by constructing a line parallel to the major trendline. If a market is trending higher and an up trendline has been constructed, the top line of the channel is drawn by connecting progressive highs. In a downtrend, a parallel to the down trendline is drawn, connecting progressive lows and a channel is born (see Figure 8.5). As long as the market remains within the channel, for the most part, the market is behaving normally during a trending type period. Nimble traders look to buy on the trendline and sell toward the upper channel line (assuming that they’re in an uptrend). Active traders might also look to reverse at the channel lines, but this generally is not recommended, because they would be fighting the trend.
Markets will eventually trade outside the bounds of the channel. This can be a significant clue to subsequent market action. The general rule of thumb is that when a market trades above the upper channel line (in an uptrend) or below the lower channel line (in a downtrend), odds are that the market is entering an accelerated phase in the direction of the major trend. In other words, a significant change in the normal supply and demand balance has taken place. With bona fide breakouts of channels, the market tends to move faster, with price action becoming more dramatic. Stops can be tightened, positions can be pyramided, and your “antenna should be up” for any signs of a subsequent trend reversal. The accelerated phase of any market can be the most profitable and most exciting time to play, but it also can be the shortest. Don’t fight it; go with it but remain alert. If acting right, after it has broken out, the market should not fall back into the channel because this would be the place to exit and reevaluate.
Which of the following statements is/are true regarding resistance?
I. Resistance is the mirror image of support.
II. This is a level where the market has a hard time moving higher or where a market has trouble getting above a certain point.
III. Resistance is an area in which the buying interest is greater than the demand.
IV. If a market continues to fail at a certain resistance level, the sellers become bolder every time that price is reached, and the buyers assume that this is the place to enter.
The mirror image of support, the ceiling, is called resistance. This is a level where the market has a hard time moving higher or where a market has trouble getting above a certain point. If cotton rallies to 10000, then tail off to 9700 and back up to 9995, and it does this more than once, this is the level (at least temporarily) of resistance. In other words, resistance is an area in which the selling interest is greater than the demand.
Support and resistance levels can be drawn graphically by using a horizontal line on a bar, chart connecting the floor points, in the case of support, and ceiling points, in the case of resistance. These are important levels that indicate the areas you would expect a market to hold or to fail. As with trendline points, traders are cognizant of where support and resistance levels are. As a result, they can become a self-fulfilling prophecy, at least in the short run. If a market continues to fail at a certain resistance level, the sellers become bolder every time that price is reached, and the buyers assume that this is the place to exit.
The mirror image of support, the ceiling, is called resistance. This is a level where the market has a hard time moving higher or where a market has trouble getting above a certain point. If cotton rallies to 10000, then tail off to 9700 and back up to 9995, and it does this more than once, this is the level (at least temporarily) of resistance. In other words, resistance is an area in which the selling interest is greater than the demand.
Support and resistance levels can be drawn graphically by using a horizontal line on a bar, chart connecting the floor points, in the case of support, and ceiling points, in the case of resistance. These are important levels that indicate the areas you would expect a market to hold or to fail. As with trendline points, traders are cognizant of where support and resistance levels are. As a result, they can become a self-fulfilling prophecy, at least in the short run. If a market continues to fail at a certain resistance level, the sellers become bolder every time that price is reached, and the buyers assume that this is the place to exit.
If the initial margin requirement is $3000, then how much should be the maintenance margin?
Assume that corn is trading at $6 per bushel, and the initial margin requirement is $2,000. A corn contract has a size of 5,000 bushels, so at $6 per bushel, the total value of the contract is $30,000. However, all that is required to purchase or sell a contract is $2,000 (in his example, about 6%). A rule of thumb for maintenance margin is that it will be at the 75% level of initial. If the initial is $2,000, for example, maintenance might be $1,500.
Assume that corn is trading at $6 per bushel, and the initial margin requirement is $2,000. A corn contract has a size of 5,000 bushels, so at $6 per bushel, the total value of the contract is $30,000. However, all that is required to purchase or sell a contract is $2,000 (in his example, about 6%). A rule of thumb for maintenance margin is that it will be at the 75% level of initial. If the initial is $2,000, for example, maintenance might be $1,500.
Which of the following statements is/are true regarding the basis in short and long hedge?
I. If a short hedger (one who sells futures) experiences a widening of the basis (where cash prices have fallen to a greater degree than futures—either cash has fallen faster or risen slower than futures), a basis loss may result. In other words, the short hedger’s cash position loss may be greater than the gain realized on the futures side of the transaction.
II. In a rising market, the gain on the cash side of the transaction would be as large as the loss on the futures side.
III. A basis gain would occur with a widening basis on a short hedge. The futures would rise in price to a greater degree than the cash.
IV. A narrowing basis yields additional gains for a short hedger (the cash falls less, or rises more, in relation to the futures) and incremental losses for a long hedger (the cash falls less, or rises more, in relation to the futures).
The basis
In these examples, I have kept the basis fairly constant, but in reality, it can change. If a short hedger (one who sells futures) experiences a widening of the basis (where cash prices have fallen to a greater degree than futures—either cash has fallen faster or risen slower than futures), a basis loss may result. In other words, the short hedger’s cash position loss may be greater than the gain realized
on the futures side of the transaction. Or, in a rising market, the gain on the cash side of the transaction would not be as large as the loss on the futures side. Conversely, a basis gain would occur with a widening basis on a long hedge. The futures would rise in price to a greater degree than the cash. A narrowing basis yields additional gains for a short hedger (the cash falls less, or rises more, in relation to the futures) and incremental losses for a long hedger (the cash falls less, or rises more, in relation to the futures). Basis gains or losses are a risk to a hedger, but they’re not nearly as big a risk as what is called flat price risk. The price of heating oil may move 20¢ per gallon in a couple of days, whereas the basis might move 1¢ either way. For example, the flat price move could be a result of a warmer-than-normal, winter whereas the basis change may be due to the fact it was colder in New Haven than New York that particular winter. A speculator might analyze basis changes to help determine the strength or weakness of a market, but this is really more of a hedger’s concern.
The basis
In these examples, I have kept the basis fairly constant, but in reality, it can change. If a short hedger (one who sells futures) experiences a widening of the basis (where cash prices have fallen to a greater degree than futures—either cash has fallen faster or risen slower than futures), a basis loss may result. In other words, the short hedger’s cash position loss may be greater than the gain realized
on the futures side of the transaction. Or, in a rising market, the gain on the cash side of the transaction would not be as large as the loss on the futures side. Conversely, a basis gain would occur with a widening basis on a long hedge. The futures would rise in price to a greater degree than the cash. A narrowing basis yields additional gains for a short hedger (the cash falls less, or rises more, in relation to the futures) and incremental losses for a long hedger (the cash falls less, or rises more, in relation to the futures). Basis gains or losses are a risk to a hedger, but they’re not nearly as big a risk as what is called flat price risk. The price of heating oil may move 20¢ per gallon in a couple of days, whereas the basis might move 1¢ either way. For example, the flat price move could be a result of a warmer-than-normal, winter whereas the basis change may be due to the fact it was colder in New Haven than New York that particular winter. A speculator might analyze basis changes to help determine the strength or weakness of a market, but this is really more of a hedger’s concern.
Which of the following is/are the advantages and disadvantages of options?
I. For option buyers, the primary advantage is the unlimited-risk feature.
II. Unlike with futures, with options, the most we can ever lose as a buyer (not as a seller) is what we pay for the option.
III. We could lose less by selling out prior to expiration, and we can even make significant profit trading options, but you have a specifically defined and maximum risk.
IV. The primary disadvantage is the premium. The premium must be paid upfront, and this cost must be recovered in part or in whole through a favorable movement in price.
Advantages and disadvantages of options
For option buyers, the primary advantage is definitely the limited-risk feature. Unlike with futures, with options, the most you can ever lose as a buyer (not as a seller) is what you pay for the option. You could lose less by selling out prior to expiration, and you could even make a significant profit trading options, but you have a specifically defined and maximum risk. Additional margin calls are not a possibility, and you can avoid sleepless nights because you know the worst-case scenario the day you initiate an option purchase. The same is not true with futures.
For option buyers, the primary disadvantage is the premium. The premium must be paid upfront, and this cost must be recovered in part or in whole through a favorable movement in price…or else you lose. When buying options, you can be correct in your market assessment, but if the market doesn’t move far enough in your favor, you still lose.
Consider this: If you buy a wheat option good for the current market price for a premium cost of $1,000, and the market goes nowhere (it stays at the same price for the life of the option), you’re out $1,000 plus fees. The market moved nowhere, and whoever sold that option to you keeps your $1,000.
To profit, the option seller only needs a stagnant market, a move in his direction, or an adverse move that does not cover the premium in full. If you buy a futures contract and hold it for the same time period in a market that goes nowhere, you’re out nothing except the commission costs. In this case, the “limited-risk” option is definitely more costly than the “higher-risk” futures contract. Of course, in this simple example, we don’t know what transpired in the interim period. The market could have sold off wildly, resulting in a margin
call or a stop loss being hit in the future and subsequently recovered. The futures trader could have been knocked out, perhaps more than once, while the options trader (not subject to margin calls) could sit it out. You see, there are no easy answers here, and we’ve only scratched the surface.
Advantages and disadvantages of options
For option buyers, the primary advantage is definitely the limited-risk feature. Unlike with futures, with options, the most you can ever lose as a buyer (not as a seller) is what you pay for the option. You could lose less by selling out prior to expiration, and you could even make a significant profit trading options, but you have a specifically defined and maximum risk. Additional margin calls are not a possibility, and you can avoid sleepless nights because you know the worst-case scenario the day you initiate an option purchase. The same is not true with futures.
For option buyers, the primary disadvantage is the premium. The premium must be paid upfront, and this cost must be recovered in part or in whole through a favorable movement in price…or else you lose. When buying options, you can be correct in your market assessment, but if the market doesn’t move far enough in your favor, you still lose.
Consider this: If you buy a wheat option good for the current market price for a premium cost of $1,000, and the market goes nowhere (it stays at the same price for the life of the option), you’re out $1,000 plus fees. The market moved nowhere, and whoever sold that option to you keeps your $1,000.
To profit, the option seller only needs a stagnant market, a move in his direction, or an adverse move that does not cover the premium in full. If you buy a futures contract and hold it for the same time period in a market that goes nowhere, you’re out nothing except the commission costs. In this case, the “limited-risk” option is definitely more costly than the “higher-risk” futures contract. Of course, in this simple example, we don’t know what transpired in the interim period. The market could have sold off wildly, resulting in a margin
call or a stop loss being hit in the future and subsequently recovered. The futures trader could have been knocked out, perhaps more than once, while the options trader (not subject to margin calls) could sit it out. You see, there are no easy answers here, and we’ve only scratched the surface.
How does the time decay affect the options?
I. The time value of an option decreases slightly each day (provided that there is still a reasonable amount of time left before expiration).
II. The rate of this increase becomes more rapid as the option gets closer to expiration. This is termed normal time decay.
III. The normal time decay works to the detriment of the seller and the benefit of the buyer.
IV. As an option gets close to expiration time, the value becomes less and less. What matters is the relationship between the strike and the underlying commodity. This is because, at expiration, the option can only be worth something or, alternatively, nothing—and that’s it.
Time decay
All else being equal, the time value of an option decreases slightly each day (provided that there is still a reasonable amount of time left before expiration). The rate of this decrease becomes more rapid as the option gets closer to expiration. This is termed the normal time decay, and it works to the detriment of the buyer and the benefit of the seller. As an option gets close to expiration time, the value becomes less and less. What matters is the relationship between the strike and the underlying commodity. This is because, at expiration, the
option can only be worth something or, alternatively, nothing—and that’s it.
Remember, you might buy a call because you think a particular commodity will increase in price, but you could show a loss even if you are correct. This happens when the extent of the rise is insufficient to compensate for the time it takes to occur.
Time decay
All else being equal, the time value of an option decreases slightly each day (provided that there is still a reasonable amount of time left before expiration). The rate of this decrease becomes more rapid as the option gets closer to expiration. This is termed the normal time decay, and it works to the detriment of the buyer and the benefit of the seller. As an option gets close to expiration time, the value becomes less and less. What matters is the relationship between the strike and the underlying commodity. This is because, at expiration, the
option can only be worth something or, alternatively, nothing—and that’s it.
Remember, you might buy a call because you think a particular commodity will increase in price, but you could show a loss even if you are correct. This happens when the extent of the rise is insufficient to compensate for the time it takes to occur.
Regarding IB and FCM, which of the following statements is true?
IB and FCM
An IB cannot accept customer funds, and therefore requires the services of an FCM. The FCM may act either in a service provider capacity, where the IB remains independent, or in a guarantor capacity. An IB acting under a guaranty agreement with an FCM is required to process all customer activity through the guarantor FCM. An independent IB is not restricted to using a specific FCM to process customer account activity. Regulations prevent an IB from accepting customer funds with the exception of checks made payable to a futures commission merchant (FCM). Therefore, an IB must register as an FCM in order to accept customer payments. An IB that registers as an FCM is subject to a higher threshold with respect to minimum capital and reporting requirements.
IB and FCM
An IB cannot accept customer funds, and therefore requires the services of an FCM. The FCM may act either in a service provider capacity, where the IB remains independent, or in a guarantor capacity. An IB acting under a guaranty agreement with an FCM is required to process all customer activity through the guarantor FCM. An independent IB is not restricted to using a specific FCM to process customer account activity. Regulations prevent an IB from accepting customer funds with the exception of checks made payable to a futures commission merchant (FCM). Therefore, an IB must register as an FCM in order to accept customer payments. An IB that registers as an FCM is subject to a higher threshold with respect to minimum capital and reporting requirements.
From the statements below regarding IB and FCM, which one seems to be the most appropriate to you?
IB and FCM
An IB cannot accept customer funds, and therefore requires the services of an FCM. The FCM may act either in a service provider capacity, where the IB remains independent, or in a guarantor capacity. An IB acting under a guaranty agreement with an FCM is required to process all customer activity through the guarantor FCM. An independent IB is not restricted to using a specific FCM to process customer account activity. Regulations prevent an IB from accepting customer funds with the exception of checks made payable to a futures commission merchant (FCM). Therefore, an IB must register as an FCM in order to accept customer payments. An IB that registers as an FCM is subject to a higher threshold with respect to minimum capital and reporting requirements.
IB and FCM
An IB cannot accept customer funds, and therefore requires the services of an FCM. The FCM may act either in a service provider capacity, where the IB remains independent, or in a guarantor capacity. An IB acting under a guaranty agreement with an FCM is required to process all customer activity through the guarantor FCM. An independent IB is not restricted to using a specific FCM to process customer account activity. Regulations prevent an IB from accepting customer funds with the exception of checks made payable to a futures commission merchant (FCM). Therefore, an IB must register as an FCM in order to accept customer payments. An IB that registers as an FCM is subject to a higher threshold with respect to minimum capital and reporting requirements.
From the statements below regarding NFA membership requirements, which one seems to be inappropriate to you?
NFA membership requirements
In 1978, legislation that amended the Commodity Exchange Act (CEA) was passed. It provided for mandatory membership in at least one futures association that would act in a regulatory capacity on behalf of the Commodity Futures Trading Commission (CFTC). Since the National Futures Association (NFA) is the only such registered futures association, the legislation effectively made NFA membership mandatory.
NFA membership requirements
In 1978, legislation that amended the Commodity Exchange Act (CEA) was passed. It provided for mandatory membership in at least one futures association that would act in a regulatory capacity on behalf of the Commodity Futures Trading Commission (CFTC). Since the National Futures Association (NFA) is the only such registered futures association, the legislation effectively made NFA membership mandatory.
Which of the following statements is not included in Customer information required to establish trading account?
Customer information required to establish trading account
National Futures Association (NFA) Compliance Rule 2-30 (the know your customer rule) requires that the risks of futures trading be disclosed to customers before a trading account is opened. The minimum information that must be provided by customers in order to establish a trading account is as follows:
• the name, address, and principal occupation or business of the customer
• the current estimated annual income and net worth of the customer (if the customer is an individual)
• the customer’s net worth or net assets and current estimated annual income; or, if current income is not available, the customer’s annual income for the previous year (if the customer is not an individual)
• the approximate age and/or date of birth of the customer (if the customer is an individual)
• an indication of the previous investment and futures trading experience of the customer
• other information considered to be reasonable and appropriate by the member or associate in order to appropriately disclose the risks of futures trading to the customer
Customer information required to establish trading account
National Futures Association (NFA) Compliance Rule 2-30 (the know your customer rule) requires that the risks of futures trading be disclosed to customers before a trading account is opened. The minimum information that must be provided by customers in order to establish a trading account is as follows:
• the name, address, and principal occupation or business of the customer
• the current estimated annual income and net worth of the customer (if the customer is an individual)
• the customer’s net worth or net assets and current estimated annual income; or, if current income is not available, the customer’s annual income for the previous year (if the customer is not an individual)
• the approximate age and/or date of birth of the customer (if the customer is an individual)
• an indication of the previous investment and futures trading experience of the customer
• other information considered to be reasonable and appropriate by the member or associate in order to appropriately disclose the risks of futures trading to the customer
Which of the following statements is true regarding the customer information provided by NFA member who is not a FINRA member?
Customer information provided by NFA member who is not a FINRA member
Information about the customer provided by a National Futures Association (NFA) member who is not also registered as a member of the Financial Industry Regulatory Authority (FINRA) and intends to trade security-based futures on behalf of a customer include the following details:
• The intent of the customer to engage in either hedging or speculation
• The employment status of the customer (name of employer, self-employed, retired, etc.)
• The estimated net worth of the customer (cash, securities, properties, other)
• The marital status of the customer and the number of dependents
• Other information that the member or associate considers reasonable and relevant, and will allow the member or associate to provide appropriate recommendations to the customer
Customer information provided by NFA member who is not a FINRA member
Information about the customer provided by a National Futures Association (NFA) member who is not also registered as a member of the Financial Industry Regulatory Authority (FINRA) and intends to trade security-based futures on behalf of a customer include the following details:
• The intent of the customer to engage in either hedging or speculation
• The employment status of the customer (name of employer, self-employed, retired, etc.)
• The estimated net worth of the customer (cash, securities, properties, other)
• The marital status of the customer and the number of dependents
• Other information that the member or associate considers reasonable and relevant, and will allow the member or associate to provide appropriate recommendations to the customer
Regarding NFA Rule 2-29, which of the following statements is true?
NFA Rule 2-29
In general, NFA Rule 2-29 regarding communication with the public prohibits information which is fraudulent or deceitful, is part of a high pressure approach, and/or states that futures trading is appropriate for all persons. Promotional materials are prohibited from including content that:
• is likely to deceive the public
• contains any material misstatement of fact or purposely omits any fact, which renders the promotional material misleading
• mentions the possibility of profit without an equally prominent statement of the risk of loss
• makes reference to actual past trading profits without a disclaimer that such results are not necessarily indicative of future results
• includes any specific numerical or statistical information regarding the past financial performance and rate of return of any actual accounts, unless such information meets specific requirements and regulations set by the CFTC
• includes any testimonial that does not prominently feature displayed statements indicating that the testimonial is neither indicative of future performance nor provided in exchange for compensation, and that the testimonial is not representative of all reasonably comparable accounts
NFA Rule 2-29
In general, NFA Rule 2-29 regarding communication with the public prohibits information which is fraudulent or deceitful, is part of a high pressure approach, and/or states that futures trading is appropriate for all persons. Promotional materials are prohibited from including content that:
• is likely to deceive the public
• contains any material misstatement of fact or purposely omits any fact, which renders the promotional material misleading
• mentions the possibility of profit without an equally prominent statement of the risk of loss
• makes reference to actual past trading profits without a disclaimer that such results are not necessarily indicative of future results
• includes any specific numerical or statistical information regarding the past financial performance and rate of return of any actual accounts, unless such information meets specific requirements and regulations set by the CFTC
• includes any testimonial that does not prominently feature displayed statements indicating that the testimonial is neither indicative of future performance nor provided in exchange for compensation, and that the testimonial is not representative of all reasonably comparable accounts
Regarding vertical credit spread and vertical debit spread, which of the following statements is true?
Vertical credit spread and vertical debit spread
A vertical credit spread and a vertical debit spread are said to be mirror images of each other. Both credit and debit spreads are considered vertical because they use the same option type (call or put) in two different positions (long or short). Both are designed such that the maximum profit and loss are limited by the price range of the two option types (puts or calls). A credit spread (bull put or bear call) limits profitability to the net premium income, and it limits losses to the adverse change in price. A debit spread is a mirror image of the credit spread because it limits losses to the net premium expense, and it also limits profitability to the beneficial change in price.
Vertical credit spread and vertical debit spread
A vertical credit spread and a vertical debit spread are said to be mirror images of each other. Both credit and debit spreads are considered vertical because they use the same option type (call or put) in two different positions (long or short). Both are designed such that the maximum profit and loss are limited by the price range of the two option types (puts or calls). A credit spread (bull put or bear call) limits profitability to the net premium income, and it limits losses to the adverse change in price. A debit spread is a mirror image of the credit spread because it limits losses to the net premium expense, and it also limits profitability to the beneficial change in price.
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