SIE study guide
Written by the FinLicensePrep editorial team Last reviewed How we write our questions
The SIE covers four FINRA sections: capital markets (16%), products and their risks (44%), trading, customer accounts and prohibited activities (31%), and the regulatory framework (9%). This guide follows that order, explains each topic in plain words with one worked example, and gives formula cards for the math, from bond yields to option breakevens.
On this page
- How should you study for the SIE?
- Section 1: Knowledge of Capital Markets (16%, 12 questions)
- Section 2: Understanding Products and Their Risks (44%, 33 questions)
- Section 3: Understanding Trading, Customer Accounts and Prohibited Activities (31%, 23 questions)
- Section 4: Overview of the Regulatory Framework (9%, 7 questions)
- Check yourself: five practice questions
The SIE exam tests four official sections, and this guide follows them in FINRA’s order. Each topic gets a plain explanation and one worked example, and formula cards show the math step by step. All companies and numbers are made up.
For the exam format, fee and passing score, see our SIE prep hub, which also lists all SIE practice exams in one place.
How should you study for the SIE?
Study in proportion to the section weights, and test yourself early. Products and their risks is 44% of the scored questions, so it deserves the largest share of your time.
| Section | Scored questions | Share |
|---|---|---|
| 1. Knowledge of Capital Markets | 12 | 16% |
| 2. Understanding Products and Their Risks | 33 | 44% |
| 3. Understanding Trading, Customer Accounts and Prohibited Activities | 23 | 31% |
| 4. Overview of the Regulatory Framework | 7 | 9% |
Source: FINRA SIE Content Outline (checked 14 November 2026). The real exam also mixes in 5 unscored pretest questions.
- Take a baseline test. Work through our full-length SIE practice exam in study mode, which is untimed and explains each answer as you go.
- Read your section scores. The results page shows one bar per section, weakest first.
- Study your two weakest sections with this guide. Work each formula card by hand, then cover the answer and do it again.
- Retest in exam mode. It runs a 105-minute timer, the same as the real SIE: 84 seconds per scored question.
- Answer every question. FINRA’s outline says there is no penalty for guessing.
A practice score shows what to study next; it does not predict your real result. Our questions are written by the FinLicensePrep editorial team with AI tools assisting drafting and checking, and our editorial policy explains how every question is checked. No credentialed expert has reviewed this content yet.
Section 1: Knowledge of Capital Markets (16%, 12 questions)
Section 1 covers regulators, market participants, the economy and new offerings. It is mostly vocabulary.
Who regulates the securities markets?
The Securities and Exchange Commission (SEC) is the federal agency that oversees the US securities markets. A self-regulatory organization (SRO) is an industry body that writes and enforces rules for its members under SEC oversight; the outline names FINRA, the MSRB and Cboe.
- FINRA oversees broker-dealers and their registered people.
- MSRB (Municipal Securities Rulemaking Board) writes rules for firms dealing in municipal securities.
- State regulators enforce state securities laws, called blue-sky laws; NASAA is their association.
- The Federal Reserve runs monetary policy and sets credit rules such as Regulation T.
- SIPC (Securities Investor Protection Corporation) helps customers recover cash and securities when a member broker-dealer fails.
- FDIC insures bank deposits, not securities.
Worked example: A customer’s ABC Corp shares fall 40%. The broker-dealer is healthy. Does SIPC cover the loss? No. SIPC protects customers when a member firm fails, not against a drop in market value.
Who are the market participants?
A market maker is a dealer that stands ready to buy and sell a security at its posted bid and ask. An introducing broker takes orders but sends them to a clearing firm, which holds accounts and settles trades. A transfer agent keeps the issuer’s record of owners. An accredited investor meets SEC wealth or income tests and may buy certain private offerings.
What are the primary, secondary, third and fourth markets?
The primary market is where an issuer sells new securities and receives the money. The secondary market is where investors trade existing securities with each other. The third market is exchange-listed securities traded over the counter (OTC). The fourth market is institutions trading directly with each other, without a broker-dealer.
Worked example: ABC Corp sells 1 million new shares in its initial public offering (IPO). That is the primary market, and ABC Corp gets the proceeds. A week later, one investor sells 100 of those shares to another on an exchange. That is the secondary market, and ABC Corp gets nothing.
How do the Federal Reserve and the economy affect markets?
Monetary policy is the Federal Reserve’s control of money supply and interest rates. Fiscal policy is government taxing and spending, set by Congress and the President. The Fed’s tools include open market operations, the discount rate and its federal funds rate target.
The business cycle runs expansion, peak, contraction and trough. Leading indicators turn before the economy, lagging indicators after. Defensive companies, such as makers of everyday goods, hold up better in a downturn than cyclical ones.
Worked example: The Fed buys Treasury bills in the open market. Banks gain reserves and have more to lend, so short-term rates tend to fall. Because bond prices move opposite to rates, existing bond prices tend to rise.
How are new securities offered?
An underwriter is a firm that helps an issuer sell new securities. In a firm commitment, the underwriter buys the whole issue and carries the risk of unsold securities. In a best-efforts offering, the underwriter only agrees to try.
A prospectus is the disclosure document for a registered offering; an official statement is the one for a municipal offering. A shelf registration lets an issuer register once and sell over time.
Worked example: An underwriter agrees to a firm commitment for 2 million ABC Corp shares at $20 and sells only 1.8 million. The underwriter owns the other 200,000 shares and bears any loss. In a best-efforts deal, those shares would simply go unsold.
Section 2: Understanding Products and Their Risks (44%, 33 questions)
Section 2 is the largest SIE section, and most of the SIE’s math is here.
What is the difference between common and preferred stock?
Common stock is ownership in a company, usually with voting rights and limited liability: a shareholder cannot lose more than the amount invested. Preferred stock usually pays a fixed dividend, usually has no vote, and is paid before common stock.
A right lets shareholders buy new shares below market for a short time; a warrant lets the holder buy at a set price, usually above market when issued, for years. An American Depositary Receipt (ADR) is a US-traded certificate for shares of a foreign company.
Worked example: ABC Corp is liquidated. The payment order is secured creditors, then unsecured creditors such as most bondholders, then preferred stockholders, and common stockholders last.
How do bonds work?
A bond is a loan to an issuer. Par value is the face amount repaid at maturity, usually $1,000. The coupon is the fixed annual interest rate, as a percent of par. Yield is the return the buyer actually earns at the price paid.
A general obligation (GO) municipal bond is backed by the issuer’s taxing power; a revenue bond is paid from a project’s income, such as a toll road. Lower-rated bonds pay higher yields for their extra credit risk. A callable bond can be repaid early by the issuer, usually after rates fall.
Current yield
Current yield = annual interest ÷ market price
- Annual interest: coupon rate × par value.
- Market price: what the bond costs today, in dollars.
Example: An ABC Corp bond has a 5% coupon and $1,000 par, so it pays $50 a year. It trades at $960. Current yield = $50 ÷ $960 = 0.05208, or about 5.21%.
Bond price vs yield
Price up → yield down. Price down → yield up.
- Premium (price above par): coupon > current yield > yield to maturity.
- Discount (price below par): coupon < current yield < yield to maturity.
- At par: coupon, current yield and yield to maturity are equal.
Example: An ABC Corp bond has a 6% coupon ($60 a year) and trades at $1,050, a premium. Current yield = $60 ÷ $1,050 = about 5.71%, below the 6% coupon. Yield to maturity is lower still, because the buyer pays $1,050 and gets back only $1,000.
When market rates rise, new bonds pay more, so older bonds must fall in price to compete. This is interest rate risk, and it is larger for long-term bonds.
Tax-equivalent yield
Tax-equivalent yield = municipal yield ÷ (1 − tax rate)
- Municipal yield: the yield on a bond whose interest is free of federal income tax.
- Tax rate: the investor’s federal tax rate, as a decimal.
Example: A municipal bond yields 3%, and the investor’s tax rate is 24% (an example rate only). Tax-equivalent yield = 3% ÷ 0.76 = about 3.95%. A taxable bond would need to yield about 3.95% to match it after tax.
How do options work?
An option gives the buyer a right and puts an obligation on the seller. A call is the right to buy the underlying at the strike price until expiration; a put is the right to sell. The premium is the option’s price. One standard equity option covers 100 shares.
A call is in the money when the market price is above the strike; a put when it is below. Buyers (long) risk only the premium. Sellers (writers) collect the premium and take on the obligation; a covered call writer owns the shares. American-style options can be exercised any time before expiration, European-style only at expiration. The OCC issues and guarantees listed options, and customers must receive the Options Disclosure Document (ODD).
Option breakeven: long call
Breakeven = strike price + premium
- Strike price: the price at which the buyer may buy the shares.
- Premium: the price paid per share for the option.
Example: An investor buys 1 ABC Corp 50 call for a premium of 3. Breakeven = 50 + 3 = $53 a share. The most the investor can lose is 3 × 100 shares = $300.
Option breakeven: long put
Breakeven = strike price − premium
- Strike price: the price at which the buyer may sell the shares.
- Premium: the price paid per share for the option.
Example: An investor buys 1 ABC Corp 40 put for a premium of 2. Breakeven = 40 − 2 = $38 a share. Maximum loss = 2 × 100 = $200. Maximum gain, if the stock falls to zero = (40 − 2) × 100 = $3,800.
How do investment companies and sales charges work?
An open-end fund (mutual fund) issues and redeems shares at net asset value (NAV): assets minus liabilities, divided by shares outstanding. A closed-end fund has a fixed number of shares that trade on an exchange. A unit investment trust (UIT) holds a fixed portfolio. A variable annuity is an insurance contract whose value depends on investments in a separate account, often with surrender charges.
The public offering price (POP) is NAV plus any front-end sales charge (load). A breakpoint is a purchase size at which the sales charge drops. A letter of intent (LOI) gets the breakpoint now for a promise to invest a set amount over a set period; rights of accumulation (ROA) count existing holdings toward it. A 12b-1 fee is an ongoing distribution fee.
Sales charge as a percent of the public offering price
Sales charge % = (POP − NAV) ÷ POP
- POP: public offering price, what the buyer pays per share.
- NAV: net asset value per share.
Example: NAV is $9.40 and POP is $10.00, so the sales charge is $0.60. As a percent of POP: $0.60 ÷ $10.00 = 6%. Dividing by NAV instead ($0.60 ÷ $9.40, about 6.38%) is a common wrong answer.
What other packaged products are tested?
- 529 plans are municipal fund securities for education; the owner controls the account and the beneficiary is the student.
- Direct participation programs (DPPs), such as limited partnerships, pass income and losses through to investors. They are usually illiquid.
- REITs (real estate investment trusts) own property or real estate loans and pay out income without double taxation.
- Hedge funds are private pools with high minimums and limited liquidity.
- ETFs hold a basket of assets and trade all day; ETNs are unsecured debt of the issuer.
Worked example: An ETN and an ETF track the same index, and the ETN’s issuer runs into trouble. The ETN can lose value even if the index rises, because it is only the issuer’s promise to pay. The ETF owns its assets, so it does not carry that credit risk.
What investment risks does the SIE test?
Systematic (market) risk affects the whole market and cannot be diversified away. Non-systematic risk affects one company or industry and can be reduced by diversification. The outline also lists credit, interest rate, reinvestment, inflation, liquidity (no quick sale at a fair price), currency, political, prepayment and capital risk.
Worked example: A portfolio is all ABC Corp stock, and ABC Corp loses a major lawsuit. That is non-systematic risk; owning many companies would have reduced it. A broad market fall would still hurt a diversified portfolio, because that is systematic risk.
Section 3: Understanding Trading, Customer Accounts and Prohibited Activities (31%, 23 questions)
What order types should you know?
A market order executes at once at the best available price. A limit order sets the worst acceptable price: a buy limit fills at the limit or lower, a sell limit at the limit or higher. A stop order becomes a market order once the stock trades at or through the stop price. A good-til-canceled (GTC) order stays open until filled or canceled.
The bid is the highest price a buyer will pay; the ask is the lowest a seller will accept. Selling short means selling borrowed shares, hoping to buy them back cheaper. A firm acting as agent charges a commission; acting as principal, it trades from its own account.
Worked example: ABC Corp trades at $48. A customer who owns it enters a sell stop at $45. The stock trades at $45, the order becomes a market order, and it fills at the next available price, which could be $45 or a little lower.
How are investment returns measured?
Total return is income plus price change, divided by the amount invested. Cost basis is what the investor paid, used to work out gain or loss.
The record date is the day an owner must be on the company’s books to get a dividend. The ex-dividend date is the first day the stock trades without the dividend, so a buyer on or after it does not get that dividend. The payable date is when the money is paid.
Worked example: An investor buys ABC Corp at $40, receives $1 in dividends and sells at $44. Total return = ($4 gain + $1 income) ÷ $40 = 12.5%.
Basis points
1 basis point = 0.01%, so 100 basis points = 1%
- Basis point: the standard unit for small changes in yields and rates.
- To convert: percentage-point change × 100 = basis points.
Example: A bond’s yield rises from 4.25% to 4.60%, a change of 0.35 percentage points. 0.35 × 100 = 35 basis points.
When do trades settle?
Settlement is when the buyer pays and the seller delivers; T is the trade date and T+1 is one business day later. The SEC moved most broker-dealer securities transactions to T+1, with a compliance date of 28 May 2024 (SEC press release, checked 14 November 2026).
What do stock splits and other corporate actions do?
A corporate action is an issuer event that changes its securities, such as a split, buyback, tender offer or merger. A proxy lets a shareholder vote without attending the meeting.
Stock split: effect on price and share count
New shares = old shares × (new ÷ old). New price = old price × (old ÷ new).
- Split ratio: written “new-for-old”, for example 3-for-2.
- Total value and total cost basis: unchanged by the split.
Example: 100 ABC Corp shares at $90 ($9,000) go through a 3-for-2 split: 100 × 3 ÷ 2 = 150 shares, and $90 × 2 ÷ 3 = $60 each. 150 × $60 = $9,000, the same as before. In a 1-for-4 reverse split, 200 shares at $2 become 50 shares at $8; both total $400.
What account types and registrations should you know?
In a cash account the customer pays in full. In a margin account the firm lends part of the price and holds the securities as collateral, under the Federal Reserve’s Regulation T and FINRA Rule 4210. A discretionary account lets the representative choose the security, whether to buy or sell, or the amount without asking first, and needs the customer’s written authorization. A fee-based account charges on assets; a commission account charges per trade.
A custodial account under the Uniform Transfers to Minors Act (UTMA) is run by an adult for a minor. Retirement accounts such as IRAs have contribution limits and required minimum distributions; check current figures with the IRS.
Worked example: Two people hold an account as joint tenants with rights of survivorship (JTWROS), and one dies. The whole account passes to the survivor. As tenants in common, the deceased person’s share would go to that person’s estate instead.
What does anti-money laundering cover?
Money laundering is making illegal money look legitimate. Its classic stages are placement (cash enters the system), layering (moving it to hide the source) and integration (it returns as apparently clean money). Structuring is splitting cash into smaller amounts to avoid reporting, and is itself illegal.
Every firm needs a written AML program (FINRA Rule 3310). A Suspicious Activity Report (SAR) is filed with FinCEN, and the customer must not be told. A Currency Transaction Report (CTR) is filed for large cash transactions. OFAC keeps the Specially Designated Nationals (SDN) list of people firms must not deal with.
Worked example: A new customer deposits cash several days in a row, each time just under the reporting level, then wires it abroad. The pattern suggests structuring and layering. The firm should review it and, if warranted, file a SAR without telling the customer.
What do records, privacy, communications and best interest require?
Firms must keep books and records for set periods, send confirmations and statements, and keep a business continuity plan (BCP). Regulation S-P requires firms to protect customers’ nonpublic personal information. FINRA Rule 2210 sorts communications into retail, correspondence and institutional. Know your customer (KYC) means learning the essential facts about each customer, and Regulation Best Interest requires a recommendation to a retail customer to be in that customer’s best interest.
Worked example: A retired customer who needs steady income and cannot afford losses asks about an illiquid DPP. Recommending a large position would be hard to defend under the best interest standard.
What activities are prohibited?
Market manipulation is any action that creates a false picture of price or activity, such as spreading rumors, pump and dump, front running or marking the close. Insider trading is trading on material nonpublic information, which is information a reasonable investor would find important and the public does not have. Penalties include fines, expulsion and prison.
Also prohibited: restricted persons, such as industry employees, buying new equity IPOs (FINRA Rule 5130); misusing customer funds; paying commissions to unregistered persons; signatures of convenience; and falsifying records.
Worked example: A trader learns a large institution is about to place a block order to buy ABC Corp, and buys ABC Corp for the firm’s own account first. That is front running, which FINRA Rule 5270 prohibits.
Section 4: Overview of the Regulatory Framework (9%, 7 questions)
Section 4, the smallest section, covers registration, continuing education and reporting.
How do registration and continuing education work?
A registered person has passed the required exams and is registered through a member firm. Applicants go through background checks and fingerprinting. Statutory disqualification bars a person from the industry, for example after certain felony convictions.
Continuing education (CE) has two parts: the Regulatory Element, set by FINRA, and the Firm Element, the firm’s own training plan.
Worked example: A firm hires an assistant who has passed no exams. The assistant may schedule appointments and update addresses, but may not accept a customer’s buy order or call prospects to pitch an investment.
What must associated persons report?
Form U4 is the registration form a firm files for each representative and must be kept current; Form U5 is filed when a representative leaves. Misleading or missing information can lead to discipline.
An outside business activity (OBA) is paid work outside the firm and needs prior written notice to the firm (FINRA Rule 3270). A private securities transaction (PST) is selling securities away from the firm; it needs prior written notice and, if paid, the firm’s written approval (FINRA Rule 3280). Gifts, entertainment and political contributions have limits; learn current figures from the rule text.
Worked example: A representative takes paid weekend work coaching a youth sports team. That is an OBA, so the firm needs prior written notice. Helping a friend’s startup sell its shares to investors for a fee would be a PST, needing the firm’s written approval first.
Check yourself: five practice questions
Try five questions from our first SIE practice exam. Each answer comes with an explanation.
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Show answer and explanation
Answer: B. The $5,000 she invested in the shares
Why B is correct
Common stockholders have limited liability: they own part of the corporation but are not personally responsible for its debts. The most a stockholder can lose is the amount paid for the shares, here $5,000.
Why the others are wrong
- A. Stockholders are not personally liable for corporate debts; that is the meaning of limited liability.
- C. Unpaid bond interest is owed by the corporation to its bondholders, not by its stockholders.
- D. There is no multiple of the investment that stockholders must cover; the loss is capped at the amount invested.
FINRA SIE Content Outline, 2.1.1
Show answer and explanation
Answer: B. $20.15
Why B is correct
The ask (offer) is the price at which a market maker will sell, so a customer buying at market pays the ask. The bid is the price at which the market maker will buy, which is what a customer selling at market receives. The difference between the two is the spread.
Why the others are wrong
- A. $20.10 is the bid, the price a customer would receive when selling.
- C. $20.125 is the midpoint of the quote. A market order against this quote fills at the ask, not halfway between.
- D. $20.05 is the bid minus the spread. It is not part of the quote.
FINRA SIE Content Outline, 3.1.1
Show answer and explanation
Answer: C. The Securities and Exchange Commission
Why C is correct
FINRA is a self-regulatory organization (SRO) that operates under SEC oversight. Under Section 19(b) of the Securities Exchange Act of 1934, an SRO must file proposed rule changes with the SEC, which publishes them for comment and approves or disapproves them (some routine changes take effect on filing).
Why the others are wrong
- A. The Federal Reserve sets monetary policy and supervises banks; it does not approve FINRA rules.
- B. NASAA is an association of state securities regulators and has no authority over FINRA's rulebook.
- D. Congress passes securities laws but does not review or approve individual SRO rule changes.
FINRA SIE Content Outline, 1.1.2 · Securities Exchange Act of 1934, Section 19(b)
Show answer and explanation
Answer: C. Common stockholders
Why C is correct
In a liquidation, creditors are paid before owners. Secured creditors come first, then unsecured creditors such as debenture holders, then preferred stockholders, and common stockholders last, receiving only what is left.
Why the others are wrong
- A. Secured bondholders have a claim on specific assets and are paid first, not last.
- B. Preferred stockholders rank ahead of common stockholders, which is part of what makes the stock preferred.
- D. General creditors are lenders, and all creditors rank ahead of any class of stockholder.
FINRA SIE Content Outline, 2.1.1
Show answer and explanation
Answer: C. A sell stop order at $46
Why C is correct
A sell stop order is placed below the current market price. When the stock trades at or below the stop price, the order becomes a market order to sell. This protects a long position against a further decline, so a sell stop at $46 matches the customer's goal.
Why the others are wrong
- A. A buy order would add shares, not sell the ones the customer owns.
- B. A sell limit order is placed above the market to sell at a target price or better. At $46, below the current price, it would fill right away instead of waiting for a decline.
- D. A buy stop is placed above the market, usually to protect a short position or to buy on a breakout.
FINRA SIE Content Outline, 3.1.1
Frequently asked questions
Which SIE section has the most questions?
Section 2, Understanding Products and Their Risks, has the most: 33 of the 75 scored questions, or 44%, according to FINRA's SIE content outline (checked 14 November 2026). Section 3 is next with 23 questions (31%).
Do I need to memorize rule numbers for the SIE?
Learn what each rule requires first. FINRA's content outline lists FINRA, MSRB and SEC rules for every section, and it says the exam assesses both rule-based and non-rule-based knowledge. Much of the outline is general industry knowledge, such as how bond prices and yields relate, that is not tied to any one rule.
Is there math on the SIE?
Yes, some. The outline includes yield, yield to maturity, total return, basis points, options, net asset value, sales charges and the effect of stock splits. The formula cards in this guide cover each of these. The outline says candidates may not bring reference materials, so practice the formulas until you know them. Our practice exams include an on-screen calculator.
Should I start in study mode or exam mode?
Start in study mode, which is untimed and explains each answer as you go, so you learn from your mistakes. Once your weakest sections improve, retake a test in exam mode, which uses the same 105-minute limit as the real SIE.
What are the most common SIE math mistakes?
Three come up often: dividing the sales charge by NAV instead of the public offering price, adding the premium for a put breakeven instead of subtracting it, and forgetting that one standard equity option covers 100 shares when working out a dollar gain or loss.