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Series 7 Practice Questions with Explanations

8/20/2026

The Series 7 is long, and its questions are built around what a general securities representative actually does: finding customers, opening accounts, making recommendations and processing transactions. Practice questions are the best way to get used to that format, but the explanations are where the learning happens. A practice question you get right by luck teaches nothing; one you get wrong and then fully understand is worth a dozen you skim past.

This page gives you twenty original Series 7 practice questions, written for this post rather than drawn from FINRA or any prep provider, organized by the four job functions in FINRA's Series 7 content outline. Each comes with a worked explanation. The set leans heavily on options, municipal securities, margin and suitability, because those are the areas where candidates lose the most points.

Before you start, look at how FINRA weights the 125 scored questions across the four functions:

Function

Scored questions

F1: Seeks business for the broker-dealer

9

F2: Opens accounts after evaluating the customer's profile and objectives

11

F3: Provides information, makes recommendations, transfers assets and maintains records

91

F4: Obtains and verifies instructions; processes, completes and confirms transactions

14

 

Function 3 is nearly three quarters of the exam. This set reflects that, with most questions in F3.

How to Work Through These

Read the question, cover the answer, and commit to a choice before checking. For calculation questions, write out every step; the Series 7 punishes careless arithmetic more than it rewards cleverness. When you miss a question, label why: missing fact, misread qualifier, or attractive distractor. Patterns in those labels tell you what to study next.

Function 1: Seeks Business for the Broker-Dealer

Question 1

A representative prepares a market commentary that will be emailed to 300 retail investors over the next week. Under FINRA's communications rule, this piece:

  • Is correspondence and needs no approval
  • Is a retail communication and must be approved by a principal before use
  • Is an institutional communication and needs no approval
  • Must be filed with the SEC before use

Answer: B. FINRA Rule 2210 classifies communications into correspondence, retail communications and institutional communications. Correspondence is a written communication distributed to 25 or fewer retail investors within a 30-calendar-day period. A message to 300 retail investors exceeds that, so it is a retail communication, which generally requires approval by an appropriately qualified principal before use. Some retail communications must also be filed with FINRA, not the SEC. Watch for the 25-investor, 30-day boundary; it is a regular source of questions.

Question 2

A representative is cold-calling prospective customers at their homes. Under FINRA's telemarketing rule, calls may be made only:

  • Between 8:00 a.m. and 9:00 p.m. local time of the person called
  • Between 9:00 a.m. and 5:00 p.m. local time of the representative
  • At any time if the person is not on the firm's do-not-call list
  • On weekdays only

Answer: A. FINRA Rule 3230 restricts outbound telemarketing calls to residences to between 8:00 a.m. and 9:00 p.m. in the called party's local time, unless an exception applies, such as prior express invitation or an established business relationship. The firm must also honor the national do-not-call registry and maintain its own firm-specific list. The key detail is whose local time governs: always the person being called.

Function 2: Opens Accounts

Question 3

A customer wants to begin trading options. Which sequence is correct?

  • The customer signs the options agreement, then receives the Options Disclosure Document, then the account is approved
  • The customer receives the Options Disclosure Document at or before account approval, and the signed options agreement is obtained within 15 days after approval
  • The account is approved and the customer may trade, and the Options Disclosure Document is sent with the first confirmation
  • Only a principal's approval is required; no documents are needed

Answer: B. Under FINRA Rule 2360, the customer must receive the Options Disclosure Document, which explains the characteristics and risks of standardized options, at or before the time the account is approved for options trading. A principal approves the account. The customer must then return a signed options agreement within 15 days after approval. Questions on this sequence often scramble the order, so memorize it as: ODD first, approval, then the signed agreement within 15 days.

Question 4

When opening an account for a non-institutional customer, a firm must make a reasonable effort to obtain the name and contact information for:

  • The customer's employer
  • A trusted contact person
  • The customer's attorney
  • A co-signer who will guarantee the account

Answer: B. FINRA Rule 4512 requires firms to make reasonable efforts to obtain the name and contact information of a trusted contact person for non-institutional accounts. The firm may contact that person to address possible financial exploitation, confirm the customer's contact information or health status, or identify a legal guardian or similar. A related rule, FINRA Rule 2165, permits a firm to place a temporary hold on disbursements where it reasonably believes financial exploitation of a specified adult is occurring. Bank staff will recognize the concern from elder financial exploitation work on the deposit side.

Question 5

To open a margin account, which document allows the broker-dealer to pledge the customer's margined securities as collateral for a bank loan?

  • The credit agreement
  • The hypothecation agreement
  • The loan consent agreement
  • The new account form

Answer: B. Hypothecation is the customer pledging securities to the broker-dealer as collateral for the margin loan, and the hypothecation agreement also allows the firm to rehypothecate them, pledging them to a bank to finance the customer's loan. The credit agreement discloses the terms of credit, including how interest is calculated. The loan consent agreement, which is optional, allows the firm to lend the customer's securities to others, such as short sellers. The credit and hypothecation agreements are required; the loan consent is not.

Function 3: Provides Information and Makes Recommendations

Question 6

A customer owns 100 shares of ABC, bought at $40, and sells 1 ABC 45 call for a premium of $2. Ignoring commissions, what is the customer's maximum gain?

  • $200
  • $500
  • $700
  • Unlimited

Answer: C. This is a covered call. If ABC rises above $45, the call will be exercised and the customer will deliver the shares at $45, a $5 per share gain on the stock, plus the $2 premium kept: $7 per share, or $700. Gains above $45 belong to the call buyer, so the upside is capped. The breakeven is the stock cost minus the premium, $38, and the maximum loss is $3,800 if the stock falls to zero. Covered calls generate income and give limited downside protection, at the cost of capped upside.

Question 7

A customer owns 100 shares of DEF, bought at $60, and buys 1 DEF 55 put for $3 to protect the position. What is the maximum loss?

  • $300
  • $500
  • $800
  • $5,700

Answer: C. A protective put sets a floor. If DEF falls below $55, the customer can exercise and sell at $55, losing $5 per share on the stock, plus the $3 premium paid, for a total of $8 per share, or $800. The breakeven is the stock cost plus the premium, $63, because the stock must rise enough to recover the cost of the protection. The trade-off is the mirror image of a covered call: limited downside, unlimited upside, but at a cost.

Question 8

An investor buys 1 GHI 50 call for $3 and 1 GHI 50 put for $2. What is this position, and what are its breakeven points?

  • A long straddle; breakevens of $45 and $55
  • A short straddle; breakevens of $47 and $53
  • A long straddle; breakevens of $47 and $52
  • A spread; one breakeven at $55

Answer: A. Buying a call and a put with the same strike and expiration is a long straddle. The total premium is $5. The position profits if the stock moves far enough in either direction to recover the premium: above $55 ($50 plus $5) or below $45 ($50 minus $5). The investor's view is that volatility will rise, not which way the stock will go. The maximum loss is the $500 premium, incurred if the stock sits at $50 at expiration. A short straddle would be the opposite bet, collecting premium on an expectation of little movement.

Question 9

A customer in the 30% federal income tax bracket is comparing a municipal bond yielding 3.5% with a taxable corporate bond. What corporate yield would be equivalent to the municipal yield, before considering state taxes?

  • 2.45%
  • 4.55%
  • 5.00%
  • 6.50%

Answer: C. The tax-equivalent yield equals the municipal yield divided by one minus the tax rate: 3.5% / (1 - 0.30) = 3.5% / 0.70 = 5.00%. A taxable bond would need to yield 5.00% to match the municipal's after-tax return. Option A is the common mistake of multiplying by (1 - tax rate), which gives the after-tax yield of a taxable bond, not the tax-equivalent yield of a municipal. The higher the customer's bracket, the more attractive tax-exempt interest becomes, which is a core suitability point for municipal recommendations.

Question 10

Which document is the primary disclosure document for a new issue of municipal securities?

  • The prospectus
  • The official statement
  • The legal opinion
  • The indenture

Answer: B. Municipal securities are exempt from the registration and prospectus requirements of the Securities Act of 1933, so the primary disclosure document is the official statement, prepared by the issuer. MSRB rules require underwriters to deliver it to purchasers of new issues. The legal opinion, from bond counsel, addresses whether the issue is valid and whether its interest is tax-exempt. The indenture, or bond resolution, sets out the issuer's obligations to bondholders. Prospectus is the trap answer, because it is the right document for registered corporate offerings.

Question 11

A municipal finance professional at a dealer contributes to the campaign of an official of an issuer. Under MSRB Rule G-37, a contribution that does not trigger the ban on municipal securities business with that issuer is limited to:

  • $100 per election, to any candidate
  • $250 per election, to an official for whom the professional is entitled to vote
  • $500 per year, to any official
  • $1,000 per election, to an official for whom the professional is entitled to vote

Answer: B. MSRB Rule G-37 imposes a two-year ban on negotiated municipal securities business with an issuer after certain contributions to an official of that issuer by the dealer or its municipal finance professionals. The rule excepts contributions of up to $250 per election by a municipal finance professional to an official for whom the professional is entitled to vote. Contributions to officials the professional cannot vote for are not covered by that exception. Pay-to-play rules are a reliable Series 7 topic.

Question 12

A 76-year-old retired customer with modest savings needs current income and access to funds for medical expenses, and describes herself as unwilling to risk principal. Which recommendation is most consistent with her profile?

  • A non-traded direct participation program in oil and gas
  • A portfolio of short- and intermediate-term investment-grade bonds
  • Uncovered call writing to generate premium income
  • A small-cap growth stock fund

Answer: B. Under Regulation Best Interest and FINRA's suitability framework, a recommendation must fit the customer's investment profile: age, financial situation, objectives, time horizon, liquidity needs and risk tolerance. Short- and intermediate-term investment-grade bonds offer income with relatively limited credit and interest rate risk and reasonable liquidity. A non-traded DPP is illiquid and speculative. Uncovered call writing carries theoretically unlimited risk. A small-cap growth fund is aimed at capital appreciation with high volatility and little current income. Read every suitability question for the liquidity and risk clues before looking at the options.

Question 13

A customer signs a letter of intent to invest enough in a mutual fund family to reach a breakpoint. Which statement is accurate?

  • The letter of intent covers 24 months and cannot be backdated
  • The letter of intent covers 13 months and may be backdated up to 90 days
  • The customer is legally obligated to complete the purchases
  • The letter of intent eliminates all sales charges

Answer: B. A letter of intent lets a customer receive a breakpoint discount immediately on purchases made over a 13-month period, and it may generally be backdated up to 90 days to include recent purchases. It is not binding on the customer; if the customer does not invest the stated amount, the fund collects the higher sales charge, typically from shares held in escrow. Breakpoints reduce the sales charge rather than eliminating it. A related violation, breakpoint selling, is recommending a purchase just below a breakpoint so the customer pays a higher charge.

Question 14

A customer buys $40,000 of stock in a new margin account and meets the Regulation T call. The stock rises to $50,000. How much excess equity, credited to the Special Memorandum Account, does the account now have?

  • $0
  • $5,000
  • $10,000
  • $25,000

Answer: B. The Regulation T initial requirement is 50%, so the customer deposited $20,000 and has a $20,000 debit balance. At a market value of $50,000, equity is $50,000 minus $20,000, or $30,000. The Regulation T requirement on $50,000 is $25,000. Equity above that requirement, $5,000, is excess equity and is credited to the SMA, where it can be withdrawn or used as buying power. Write out market value, debit and equity in a table every time; margin questions are easy when organized and treacherous when done in your head.

Question 15

An affiliate of a reporting company wants to sell stock under Rule 144. During any 90-day period, the volume of stock sold may not exceed the greater of:

  • 1% of outstanding shares or the average weekly trading volume over the previous four weeks
  • 5% of outstanding shares or the average daily trading volume
  • 10% of outstanding shares or $1 million
  • 1% of outstanding shares or the average monthly volume over the previous year

Answer: A. Rule 144 limits sales by affiliates in any 90-day period to the greater of 1% of the outstanding shares of the class or the average weekly reported trading volume over the four calendar weeks before the filing of the notice of sale. Separately, restricted securities of a reporting company carry a holding period, generally six months, before they can be resold under the rule. This is a question bankers meet in practice when an executive client holds company stock, so it is worth knowing well.

Question 16

Which statement about Treasury bills is accurate?

  • They pay semiannual interest
  • They are issued at a discount and mature at par, with maturities of one year or less
  • Their principal adjusts with the Consumer Price Index
  • They are exempt from federal income tax

Answer: B. Treasury bills are short-term obligations issued at a discount and redeemed at face value, with maturities of up to 52 weeks. The investor's return is the difference between the purchase price and par. Notes and bonds pay semiannual interest. TIPS adjust their principal for inflation using the CPI. Interest on Treasury securities is subject to federal income tax but exempt from state and local income tax, which is the reverse of most municipal bonds and a frequent exam twist.

Function 4: Processes and Confirms Transactions

Question 17

A customer has sold short 100 shares of JKL at $30. JKL now trades at $28. To limit the potential loss if the stock rises, the customer should enter a:

  • Sell stop order at $26
  • Buy limit order at $26
  • Buy stop order at $32
  • Sell limit order at $32

Answer: C. A short seller loses money as the stock rises, so the protective order is a buy stop placed above the current market. If JKL rises to $32, the buy stop becomes a market order to buy and closes the short position. Buy stops are entered above the market and sell stops below it. A buy limit at $26 would take profits on a decline, not protect against a rise. Mapping each order type to its position relative to the market is one of the quickest ways to pick up F4 points.

Question 18

Before accepting a short sale order in an equity security, a broker-dealer must generally:

  • Confirm the customer has owned the stock for at least 30 days
  • Have reasonable grounds to believe the security can be borrowed for delivery on the settlement date
  • Obtain the issuer's permission
  • Wait for an uptick in the security's price

Answer: B. Regulation SHO's locate requirement generally obliges a broker-dealer, before accepting a short sale order in an equity security, to have reasonable grounds to believe the security can be borrowed so it can be delivered on the settlement date, and to document that. The old uptick rule was eliminated in 2007; Regulation SHO's alternative uptick rule now applies a price test only after a security has fallen 10% or more from the prior day's close, which makes D a distractor for most situations.

Question 19

Under SEC Rule 10b-10, a customer confirmation must be sent:

  • Within 30 days after the trade
  • At or before the completion of the transaction
  • Only on request
  • With the next monthly statement

Answer: B. Rule 10b-10 requires a broker-dealer to give or send the customer written notification at or before completion of the transaction, which in practice means by settlement. The confirmation shows details such as the security, price, quantity, capacity in which the firm acted (agent or principal) and, in many cases, commissions or markups. The firm's capacity is the detail that ties back to the broker-versus-dealer distinction tested throughout the exam.

Question 20

A customer buys common stock in a regular-way trade on a Thursday, with no holiday on Friday. When does the trade settle?

  • Thursday
  • Friday
  • The following Monday
  • The following Tuesday

Answer: B. Regular-way settlement for most U.S. securities moved to one business day after trade date (T+1) on May 28, 2024. A Thursday trade settles Friday. If you studied from older material that taught T+2, you would pick Monday and be wrong. Rule changes are the reason to check that your prep reflects the current exam outline.

Watch Out for Recently Changed Rules

The Series 7 tests current rules, and several facts candidates memorize have changed in recent years. Settlement moved to T+1 in May 2024. FINRA raised the gift limit in Rule 3220 from $100 to $300 per recipient per year, effective March 30, 2026, though MSRB rules still apply their own limits to municipal business. Fees and retake waiting periods are also in motion. Prep material that does not reflect these changes will teach you wrong answers, so check publication dates.

Scoring Yourself

Twenty questions are a diagnostic, not a prediction. Look at where you went wrong by function and topic:

  • Options mistakes usually come from not drawing the position. Write out the strike, premium, breakeven and maximum gain and loss for every option question until it becomes automatic.
  • Municipal mistakes usually come from confusing GO and revenue backing, disclosure documents, or tax treatment.
  • Margin mistakes almost always come from skipping the table of market value, debit and equity.
  • Suitability mistakes come from reading the options before the customer profile.

FINRA lists a passing score of 72 on the 125 scored questions. Aim comfortably above that on fresh, timed practice before you sit the exam.

Next Steps

Once you know your weak areas, move to full-length practice under exam conditions: 125 scored questions in 3 hours and 45 minutes. Our Series 7 Top-Off Online Exam Prep Course is built for sponsored candidates preparing for the top-off. The Series 7 page lists the other prep formats, and if you have not yet passed the corequisite SIE, start with our post on securities licensing for bankers to see how the pieces fit. Bank staff moving from the branch should also review bank investment services compliance to understand how the rules change once they are registered.

Prepare With a Full Course

The questions above cover the patterns; a full course covers the volume. The Series 7 Top-Off Online Exam Prep Course is the next step once you have been sponsored and your 120-day window is open.

Frequently Asked Questions

Are these Series 7 practice questions from the actual exam?

No. Every question here was written for this post, based on the topics in FINRA's published Series 7 content outline. FINRA does not release live exam items, and reproducing FINRA or vendor questions would not be appropriate. Use these questions to check your understanding of the concepts and the reasoning style the exam rewards. The real exam draws on a large item bank, so concept mastery transfers far better than memorized questions.

How hard is the Series 7 compared with the SIE?

Considerably harder. FINRA lists the Series 7 at 125 scored questions over 3 hours and 45 minutes, with a passing score of 72, against 75 scored questions over 1 hour and 45 minutes for the SIE, passing at 70. The Series 7 goes much deeper into options strategies, municipal securities, margin and suitability, and its questions are framed around a representative's job functions rather than general knowledge. Most candidates need substantially more study time for it.

Which topics carry the most weight on the Series 7?

Function 3, which covers providing information to customers, making recommendations, transferring assets and maintaining records, accounts for 91 of the 125 scored questions. That function holds most of the product content: equities, debt, municipal securities, options, packaged products, direct participation programs and margin, along with suitability. Function 4, processing transactions, carries 14 questions; Function 2, opening accounts, 11; and Function 1, seeking business, 9.

How many practice questions should I do for the Series 7?

There is no official number. Aim to cover every topic in the content outline several times and to finish with multiple full-length timed exams of 125 questions in 3 hours and 45 minutes. Track scores on fresh questions rather than repeated sets, because repeated questions overstate readiness. Consistently scoring well above the passing mark on unseen material is a better signal than any particular count.

Is there a free Series 7 practice exam?

Many prep providers offer free sample questions, and FINRA publishes the Series 7 content outline, which defines what can be tested. Free material can be useful for diagnosis, but check that it reflects current rules, such as T+1 settlement and the current FINRA gift limit. Outdated practice questions are worse than none, because they train you to choose answers that are now wrong.

Do I need to know options math for the Series 7?

Yes. Options are a significant part of the product content, and questions on breakevens, maximum gain and maximum loss for single options, covered calls, protective puts, spreads and straddles appear regularly. The calculations are simple once you draw the position, but they are easy to get wrong under time pressure. Practicing a consistent method, writing out strike, premium and direction every time, is the most reliable way to collect those points.