How to Pass the CISI Derivatives Exam (Capital Markets Programme)
Pass the CISI Derivatives exam: the nine elements and their weightings, the terminology that trips people, clearing and margin, strategies, and how to revise.
Derivatives is the technical unit candidates most often find the hardest, and the reason is simple: the concepts are genuinely new to most people. Equities and bonds you have a feel for. Futures, options, swaps, margin and the language around them you usually do not, until you drill them. The good news is that derivatives reward drilling more than almost any other paper, because once the terminology clicks it stays clicked. This guide shows you what to drill.
It is 100 multiple-choice questions in 120 minutes, with a 70% pass mark, computer based, no negative marking. You complete the Capital Markets Programme with this paper plus the regulatory unit, UK Financial Regulation. IntegrityMatters, CISI's online integrity test, is a prerequisite for sitting it.
Know the weightings before you revise
The 100 questions span nine elements, weighted unevenly. Five elements carry the paper.
| # | Element | Questions |
|---|---|---|
| 1 | Introduction to Derivatives | 17 |
| 2 | Underlying Markets | 16 |
| 3 | Market Structure | 9 |
| 4 | Principles of Pricing & Valuation | 11 |
| 5 | OTC Derivatives | 7 |
| 6 | Principles of Clearing & Margin | 14 |
| 7 | Delivery & Settlement | 6 |
| 8 | Trading, Hedging & Investment Strategies | 14 |
| 9 | Regulatory Requirements | 6 |
The top five elements, Introduction, Underlying Markets, Clearing and Margin, Trading and Strategies, and Pricing, are 72 of the 100 marks. Get those solid and you have your pass. The smaller elements matter, but they are not where your evenings should go.
The terminology is the whole game
More than any other CISI paper, Derivatives is a vocabulary test before it is anything else. A large share of the questions turn on whether you have the precise meaning of a term, and the terms come in pairs that are easy to muddle:
- Long and short. A long position profits if the price rises; a short profits if it falls.
- Open and close. Opening a position establishes it; closing it cancels it with an equal and opposite trade.
- Holder and writer. The holder buys an option and has the right; the writer sells it and has the obligation.
- Call and put. A call is the right to buy; a put is the right to sell.
- Covered and naked. A covered writer owns the underlying or an offsetting position; a naked writer does not, and carries far greater risk.
- Premium. What the holder pays the writer for the option.
If you can rattle these off without hesitation, a meaningful chunk of the paper is already yours. If you cannot, every question that uses them is a coin toss. Drill the vocabulary first.
What the heavy elements test
Introduction to Derivatives and Underlying Markets (33 combined). What futures, options and swaps are, what they are used for, hedging versus speculation versus arbitrage, and the underlying markets they reference, from equities and bonds to commodities and currencies.
Principles of Clearing and Margin (14). The role of the central counterparty, why it removes counterparty risk, and how margin works: initial margin, variation margin, and the daily mark-to-market process. Conceptually the bit that most rewards careful study.
Trading, Hedging and Investment Strategies (14). Putting the instruments to work: the basic strategies, how a hedge offsets risk, and the payoff of a position. Expect questions that describe a scenario and ask what it achieves.
Principles of Pricing and Valuation (11). The fair value of a future, what drives an option premium, intrinsic value and time value. Some of this calculates, so practise it.
Where people slip
The first trap is treating it like the foundation paper. It is not. The concepts are new and they do not absorb from a single read; they need repetition until the terminology and the mechanics are automatic.
The second is the length. One hundred questions in two hours, on material that makes you think, is tiring. Full, timed mocks are the only way to build the stamina, and to find out whether your speed holds up under pressure.
The third is the usual one: revising by reading instead of being tested. With derivatives the gap between recognising a term and knowing it cold is enormous, and only practice closes it.
How to revise it
Start by nailing the vocabulary, because so much of the paper depends on it. Then move to questions across the five heavy elements, reading the explanation on every one you miss. Practise the pricing and margin calculations until they are quick. Finish with full, timed, 100-question mocks weighted exactly like the real paper, and book when you are clearing 70 per cent comfortably across more than one.
Drill it for free. Try a set of free CISI Derivatives practice questions, or take the free diagnostic to see which elements need the most work. For the full method, see the complete guide to passing your CISI exams.
Hunting for past papers? Read CISI Derivatives past papers: what exists and the best mock exams.
Frequently asked questions
How many questions are on the CISI Derivatives exam?
One hundred multiple-choice questions in 120 minutes, with a 70% pass mark. It is computer based with no negative marking, so answer every question.
Why is the Derivatives exam considered the hardest CISI paper?
Because the concepts are new to most candidates, the terminology is dense, and the paper is long. None of it is beyond a prepared candidate, but it rewards drilling more than recall, so people who only read the workbook tend to come unstuck. See how hard the CISI exams are.
Do I have to sit Derivatives, or can I choose Securities instead?
You choose. The Capital Markets Programme is completed with the regulatory unit plus one technical unit, Derivatives or Securities, depending on your role. Passkey covers both.
What should I revise first?
The terminology: long and short, open and close, holder and writer, call and put, covered and naked, premium. So many questions depend on it that getting it cold early lifts your whole score.
Find your weak spots before exam day.
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