As the CFA Institute itself has explained, certain types of CFA question have predictable traps. The best preparation is not just memorising formulas, but rehearsing the thinking process that avoids these traps.

So what should you look out for? 

Based on the CFA’s own warnings, here are a few traps to look out for (with some concrete examples):

Lesson 1: In FSA, don’t be distracted by extra data — always anchor yourself to the formula being tested.

Exam writers deliberately include irrelevant numbers to see if you know which inputs matter.

Why it matters: Under time pressure, it’s easy to try to use every number given. This wastes time and leads to errors. The skill you need is the ability to recognise which formula is being tested and filter the rest out.

Example: You are asked to calculate a company’s cash conversion cycle. You’re given sales, average receivables, average payables, and an EBIT margin. 

The EBIT margin is irrelevant — it has nothing to do with working capital. The correct approach is to recall:

Cash Conversion Cycle = Days Inventory + Days Receivables – Days Payables.

Since no inventory is given, that component is zero. You calculate receivables days and payables days, then subtract. EBIT margin never enters the equation.

How to study for this: When you practise FSA questions, deliberately highlight which numbers you actually need and cross out the rest. Build a “formula sheet” where each ratio is listed with its inputs, and beside it note “common irrelevant data given” so you get used to ignoring red herrings. On exam day, your first thought should be: which formula is in play? Only then should you look at the numbers.

Lesson 2: In Ethics, separate bad optics from true violations.

Not every action that looks questionable is automatically a breach of the Standards. The exam is testing whether you know the difference between something that may be unwise and something that directly violates the Code and Standards.

Why it matters: Candidates often over-penalise behaviour in scenarios. They assume any gift, any disagreement, or any appearance of bias must be wrong. This leads to wrong answers. What matters in Ethics is whether the professional has exercised diligence, disclosed conflicts, and maintained independence and objectivity.

Example: An analyst accepts a small travel stipend to attend a client’s conference. Does this violate the Code? 

At first glance you might say yes. 

But if the analyst disclosed the stipend to their employer and obtained consent, this does not break the Standards. The Standards are about protecting the integrity of judgment. With disclosure, the analyst has done so.

How to study for this: When you practise Ethics questions, train yourself to ask one simple question every time: has there been a breach of diligence, independence, objectivity, or disclosure? If not, the behaviour may be questionable in real life, but in the exam it is not a violation. 

To revise, make a table of each Standard with two columns: “clear violations” and “situations where disclosure/consent resolves the issue.” Keep revisiting that table until the distinction feels automatic.

Lesson 3: In fee questions, the order of operations is everything.

Hedge fund and private equity fee calculations are tested often, and most wrong answers come from applying the right percentages in the wrong order.

Why it matters: These questions look like pure arithmetic, but they are traps for the unwary. If you apply incentive fees before deducting management fees, or forget to adjust for a hurdle, you’ll arrive at one of the distractor answers.

Example: A private equity fund has $100 million committed, a 12% annual return, a 2% management fee on committed capital, and a 20% carried interest with an 8% hurdle. The sequence is:

1. Deduct the management fee ($2m).
   
2. Calculate net return ($10m).
   
3. Deduct the hurdle ($8m).
   
4. Apply carry (20% of $2m = $0.4m).
   The total fee is $2.4m. Candidates who skip step 2 or 3 will pick the wrong number.
   

How to study for this: Practise with a flowchart on paper: “AUM → management fee → net return → subtract hurdle → apply incentive.” Re-draw this flowchart until you can reproduce it from memory. When revising, write out five or six variations (with and without hurdles, different bases for management fees) so the order becomes instinctive.

Lesson 4: With options, always separate payoff from profit.

What the lesson means: Payoff is the intrinsic value at expiry. Profit is payoff minus premium. The exam frequently tests whether you know the difference.

Why it matters: Many candidates stop at payoff, forgetting the premium. This is one of the most common traps at Level I.

Example: You buy a put with a strike of $40 for a $3 premium. The stock finishes at $38. The payoff is $2, but after the $3 premium, your profit is –$1. The exam will offer $2 as an answer choice, and many will select it incorrectly.

How to study for this: Build a habit: whenever you see an options question, immediately write two lines on your scratch paper — “Payoff = … Profit = …”. Do this in every practice set. By exam day it will be muscle memory.

Lesson 5: In Derivatives, match the investor’s objective to the directional payoff.

What the lesson means: Every derivative position is either bullish or bearish. The exam wants to see if you can align the tool to the investor’s stated concern.

Why it matters: Many candidates try to memorise every contract detail. Under pressure, it’s easier to fall back on simple directional logic: if the investor fears a fall, pick the bearish hedge; if they expect a rise, pick the bullish exposure.

Example: A pension fund holds long-term bonds but fears interest rates will rise. Rising rates push bond prices down, so the fund wants protection. The correct strategy is to short bond futures (bearish on bonds), not to buy bond futures or sell bond puts (both bullish exposures).

How to study for this: Make a two-column chart: on the left list “Investor’s concern” (falling stock, rising rates, etc.), on the right the appropriate derivative hedge. Then practise quick-fire drills: read a scenario, say out loud “that’s bearish, so short futures” or “that’s bullish, so long call.” Repeat until the mapping is automatic.