Challenge Your Exam Readiness With Our Free Series 3 License Practice Questions

When a registrant places orders without the customer’s prior specific trade approval, the account is discretionary and requires a written trading authorization, typically a limited power of attorney (LPOA) granting the right to choose asset, action, and amount. Full POA (B) extends authority beyond trading (e.g., funds disbursement, broader financial acts) and is unnecessary for routine discretionary trading authority. A “managed account” (C) is a descriptive term but still requires the same written discretionary authorization under NFA/CFTC rules, along with appropriate risk disclosure documents and customer acknowledgment. Joint accounts (D) are ownership structures and unrelated to granting trading discretion. Series 3 emphasizes account opening requirements: Know Your Customer, AML/OFAC screening, risk disclosure statements (e.g., futures/options risk and ECP status if applicable), records of who has authority, and supervision of discretionary activity, including account-specific suitability and internal reviews to monitor for churning or undue risk. Proper documentation protects customers and firms and is a consistent regulatory exam focus.