Element 3 of the Derivatives Exam — Types and features of derivatives — is the contract anatomy element: futures and forwards, options, options on futures, contracts for difference, swaps, the characteristics that separate each family from the others, the leverage requirements that attach to them, and the role derivatives play inside structured products. It carries 22 of the exam's 120 questions — 18.3% — and seven of its nine learning outcomes are written at Analyze, the highest concentration on the paper.
What does Element 3 cover?
This is the most under-estimated element on the exam, because the title sounds like a glossary and the content is a comparison exercise. CIRO's own summary says the element "takes an overview of derivative contracts" and tests "the ability to understand how different types of derivative contracts work, and an analysis of the risks and benefits of using derivative contracts". The outcome list bears that out: analyse the types and features of futures and forwards, then of options, then of options on futures, then of CFDs, then of swaps — and then, separately, analyse the characteristics of futures and forwards and the characteristics of options. Two passes over the same families, the first on what they are and the second on how they behave.
Knowing what a swap is earns nothing in this element. Knowing when a swap beats a strip of forwards earns the mark. The questions put two instruments, or two sides of one instrument, next to each other and ask what differs: a position closed the same day against one carried overnight, a long against a short on the same series, an exchange-traded contract against its OTC cousin. The mechanics that decide those answers are precise and unforgiving — daily marking runs trade-to-settlement for a position held into the close and trade-to-trade for one opened and closed inside the session; a Tender Notice is irrevocable the moment it is submitted, whatever the market does next; the payoff on a futures pair is symmetric to the cent because there is one formula and the loser's loss is the winner's gain.
Two of the comparison outcomes are also quietly numeric. CIRO attaches its "may include calculations" flag to 3.6 and 3.7, on price risk and potential returns — so comparing the characteristics of futures against options can mean working out what each one pays rather than describing it. The flag sits in the outcome's key items rather than its headline, which is why this element gets read as purely descriptive.
Two more outcomes sit outside the comparison work. Outcome 3.8 is the leverage requirements that attach to derivative contracts, which is the one Apply-tagged outcome here and the hinge between this element and account appropriateness back in Element 1. Outcome 3.9 is the role of derivatives inside structured products — principal-protected notes and their relatives, where an option is buried in a package sold as something else. That outcome is the only Understand in the element and it is easy to skip; it is also the one most likely to appear in a client-facing scenario, because a structured product is how a retail client ends up holding a derivative without knowing it. EnCiro's learning centre covers this element in 42 concepts.
The official scope, outcome by outcome:
- Analyze the types and features of futures, forwards and similar derivative contracts (3.1)
- Analyze the types and features of options and similar derivative contracts (3.2)
- Analyze the types and features of futures contract options (3.3)
- Analyze the types and features of contracts for difference (CFDs) (3.4)
- Analyze the types and features of swaps contracts (3.5)
- Analyze the characteristics of futures, forwards and similar derivative contracts, including price risk and potential returns — may include calculations (3.6)
- Analyze the characteristics of options and similar derivative contracts, including price risk and potential returns — may include calculations (3.7)
- Apply the requirements relating to leverage in relation to derivative contracts (3.8)
- Understand the role of derivatives in structured products (3.9)
Scope per the official Derivatives syllabus (CIRO). Reviewed 2026-10-30.
How much is Element 3 worth on the Derivatives Exam?
Element 3 carries 22 of the Derivatives Exam's 120 questions — 18.3%, joint second-largest with pricing. Twenty-two questions across nine outcomes is about two and a half questions per outcome, so every topic in this element will be tested, and several will be tested more than once.
Seven of the nine outcomes open with Analyze — 78% of the element, against 36% across the syllabus as a whole. No other element on this exam, and no element on the CIRE, RSE or ISE, concentrates the hardest cognitive level this tightly.
EnCiro's Derivatives bank holds 2,707 active Element 3 questions to practice against — the largest single-element bank on this exam. Blueprint figures per the official CIRO Derivatives Exam syllabus.
Try a real Element 3 question
Straight from EnCiro’s Derivatives bank — pick an answer to see the explanation for every option.
A speculator short a CGB contract submits a Tender Notice. The next day the bond market rallies, making the bonds more expensive to buy for delivery. What follows?
How to study Element 3
Build one comparison table and keep adding columns to it
Rows: futures, forwards, options, options on futures, CFDs, swaps. Columns: who is obliged, who holds a right, where it trades, who clears it, how margin works, what settlement looks like, and what ends the position. The exam's questions are that table turned into sentences. Reading nine separate topic summaries produces nine separate memories; one table produces the comparisons the outcomes actually ask for.
Get the marking rules exactly right
A position opened and closed inside the same session is marked between the two trade prices and never touches the settlement price. A position held into the close is marked from the trade price to that day's settlement, and tomorrow starts from the settlement. A position rolled from a previous day marks from the prior settlement. Three cases, three reference prices, and questions that hinge on nothing else.
Treat irrevocability as the theme of futures delivery
A Tender Notice cannot be withdrawn. The market moving against the deliverer is precisely the circumstance the rule refuses to accommodate, which is why it exists. The same instinct — the obligation stands, the counterparty cannot refuse, the clearing corporation steps in only where someone does nothing — answers most of the delivery questions in this element.
Do not skip structured products
It is one outcome, written at Understand, and it is the only place on this element that connects to a retail client's statement. Know how an embedded option produces a principal-protected payoff, what the client gives up for that protection, and why the product's risk is not the issuer's marketing description of it.
FAQ
What does Derivatives Exam Element 3 cover?
Element 3 covers the types and features of derivative contracts: futures and forwards, options, options on futures, contracts for difference, and swaps — both what each one is and how each one behaves — plus the leverage requirements attached to derivative contracts and the role derivatives play inside structured products.
How many questions is Element 3 on the Derivatives Exam?
22 of the exam's 120 questions — 18.3%, per the official CIRO syllabus. It is joint second-largest with derivative pricing, behind only strategies at 26.
Why is Element 3 harder than it looks?
Because seven of its nine learning outcomes are written at Analyze, the hardest cognitive level CIRO uses — the highest concentration of any element on the exam. The title suggests definitions; the outcomes ask for comparisons. Questions put two instruments side by side and ask what differs, which is a different skill from recalling what either one is.
Can a Tender Notice be withdrawn if the market moves?
No. A Tender Notice is irrevocable once submitted. The delivering member must deliver the underlying in good deliverable form against payment on the delivery date, regardless of how the market has moved since the notice went in. There is no withdrawal right and no re-tender.
How ready are you on Element 3?
The free Derivatives readiness check scores you on every element — including this one — in about 15 minutes. 25 blueprint-weighted questions, no signup.
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