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The Stock Market Game Program

The Stock Market Game Program. A classroom activity for students grades 4 - 12. Stock Market Game Basics. SMG Basics. Real-time stock market simulation Played on the internet from any computer

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The Stock Market Game Program

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  1. The Stock Market Game Program A classroom activity for students grades 4 - 12

  2. Stock Market Game Basics

  3. SMG Basics • Real-time stock market simulation • Played on the internet from any computer • The game runs for ten weeks in the fall, spring, and late spring. A new whole year game is also available.

  4. SMG Rules • Transactions are made at the SMG WorldWide site at: www.smgww.org • Trades are processed in 5 – 20 minutes

  5. SMG Basics • Each team begins with a hypothetical $100,000 • Teams should have one to five players

  6. SMG Basics • Teams may buy, sell, shortsell, or shortcover their stocks • Invest in commonstocks, mutual funds and ETFs traded on the three major exchanges: American, New York, and NASDAQ Stock Exchanges

  7. SMG Basics • A 2%brokersfee is charged for each buy or sell – limits day trading issue • Stocks valued at less than $5.00 per share may not be bought • Teams may borrow up to $100,000 to purchase stocks on margin -- interest is charged

  8. SMG Rules • Stock and cash dividends and splits are automatically computed into team portfolios • Portfolios are updated and available on a daily basis • Rankings are updated every weekend • Teams will not appear in the rankings until a trade is made

  9. SMG Rules • 2% annual rate of interest is earned on cash balance • 7% annual rate of interest is paid on negative cash balances (borrowed money)

  10. Trades are made based on prices at time of order (market order). • Trades entered after 4:00 p.m. will are made at the next day’s opening price. • You may trade only stocks and mutual funds that have traded within the last 7 days.

  11. SMG Basics • Portfolios are not liquidated at the end of the game and should not be liquidated at the end of the game • The team with the highest portfolio equity at the end of the game wins • Portfolio equity in the tenth week is used for final rankings

  12. How Does the Competition Work?

  13. Teams compete within a geographic region and on six levels

  14. SMG Levels • Grades 4-6 • Grades 7-8 • Grades 9-12 • Post-Secondary • Youth Groups • Adult

  15. General Information

  16. General Information Buying: • Ticker symbols are available online • Must be for a minimum of 100 shares • May set a maximum purchase price limit • Called a “Long” position

  17. General Information Buying: • Must have closing price of at least $5.00 per share • No “penny” stocks • Most brokers will not allow margin purchases of stocks below $5.00

  18. General Information Selling: • Must already own the stock • Must be for a minimum of 100 shares (unless selling the only remaining shares) ex: If you bought 120 shares, then sold 100, you may then sell the remaining 20. • May set a minimum selling price limit

  19. Setting a “limit” price A limit order is an order that sets the maximum or minimum at which you are willing to buy or sell a particular stock. you want to buy stock ABC, which is trading at $12, you can set a limit order for $12.50. This guarantees that you will pay no more than $12.50 to buy this stock. you own stock ABC and it is trading at $15, you could place a limit order to sell it at $14.50. This guarantees that the stock will be sold at a price greater than or equal to $14.50 but not below. Best for overnight or weekend trades. The limit trade is executed only once.

  20. General Information Please Note: For real time trading price limits are generally not needed except for trades entered after the market close.

  21. General Information Short Selling: • Short selling starts with borrowing a stock from your broker • You sell the borrowed stock hoping to buy it back at a lower price and return (short cover) it to your broker for a profit • All rules for buying still apply

  22. General Information Short Covering: • Must have already short sold the stock • May set a maximum price limit • All other rules for selling apply

  23. General Information Example: Short Selling and Covering I feel that IBM stock is going to go down and want to short sell the stock. • I am borrowing the stock from the broker (2% brokerage fee) and selling it. Now I’ve got cash.

  24. General Information Example: Short Selling and Covering • When stock price is at its lowest, I short cover by buying the stock back in the stock exchange at the low price and returning it to the broker (2% brokerage fee). I keep what I didn’t spend. • I get the difference between the high price and the low price minus the brokerage fees.

  25. General Information # of shares X current price per share = Value of Long Position Long Positions: A Long Positionisa stock you own. Ex: If a team owns 100 shares of McDonalds, their long position is 100 shares.

  26. General Information # of shares X current price per share =Value of Short Position Short Positions: A Short Positionis a stock you borrowed from the broker and sold

  27. General Information Equity: Total Value of Long and Short Positions +Cash Balance = Equity

  28. General Information Buying on Margin: • You may borrow funds using the stock in your portfolio as collateral for the loan • Interest charged at 7%

  29. Borrowing on Margin • At the beginning of the game, teams have $200,000 of purchasing power, 50% of which is collateralized by your initial cash portfolio of $100,000 • 50% of value of long and short position is required as collateral (margin requirement) Initial Margin Requirement = 50% • Margin requirement is subtracted from Equity • Remainder is matched dollar for dollar for total buying power

  30. Margin Call: • If the Total Equity in your portfolio falls below 30% of the value of your long + short positions, your team will receive a “margin call”. • SMG will automatically liquidate a portfolio that falls below the 30% rule until the minimum margin requirement of 30% is met.

  31. Investment Basics

  32. Investment Basics Different Types of Investments: • Insured Savings Accounts • Savings Bonds • Certificates of Deposit • Treasury Bonds • Corporate Bonds • Mutual Funds • Stocks • ETFs • Collectibles • Commodities

  33. Investment Basics The RISK to RETURN Relationship: The RISKIER the Investment - The HIGHER the Return

  34. Investment Basics The Difference BetweenStocks,Bonds,andMutual Funds Stocks:You own a piece of the company You make money if the company does well Bonds:You loan money to a corporation or government You earn the interest Mutual Funds & ETFs:You own one portion of a collection of stocks, bonds, or other securities

  35. Investment Basics The Three Main Markets: NYSE: New York Stock Exchange Oldest, largest, best-known stocks NASDAQ: (NationalAssociation of Securities Dealers Automated Quotations) Large, mid-sized, and small growth companies AMEX: American Stock Exchange Mid-sized growth companies

  36. Investment Basics The Difference BetweenLargeand SmallCompanies: Large: • Often have high prices • Low risk of failure • Some pay regular dividends Small: • Potential for growth is greater • Generally prices are lower

  37. Investment Basics Common Stocks: • Pay dividends based on performance of the company • Have higher risk but may have higher reward Preferred Stocks: • Dividend amount is preset • Dividends are paid on preferred stocks before common stocks • Have lower risk but may limit reward

  38. Over-The-Counter Stocks A security which is not traded on an exchange, usually due to an inability to meet listing requirements. For such securities, brokers/dealers negotiate directly with one another over computer networks and by phone. The NASD carefully monitors their activities. Be very wary of some OTC stocks, the OTC:BB (Bulletin Board) stocks are either penny stocks or may hold bad credit records.

  39. Investment Basics • Stock Splits: • More shares are created at a lower price per share • Stockholders profit if stocks go up • Indicated with an (s) in the paper • Ex: Dell $109  $54

  40. Mutual funds • Closed-ended funds may be traded just like the stocks traded on the NYSE, NASDAQ and American Stock Exchanges. • Open-ended mutual funds can also be traded but cannot be short sold or short covered.

  41. Investment Basics Other Terminology: Blue Chipsthe largest and most profitable stocks Bull Market a market that is rising Bear Marketa market that is falling

  42. Investment Basics Why long term investing is the best route?

  43. Investment Basics DJIA over last 33+ years:

  44. Investment Basics What stocks should I buy? PE Ratio • Price-to-earnings ratio. • Earnings = earnings per share or firm profit divided by number of shares. • More earnings per share given stock price results in a lower PE ratio and a better buy. • Find PE ratios in the newspaper.

  45. Where to get more information • American Stock Exchange- www.amex.com • NASDAQ- www.nasdaq.com • NYSE- www.nyse.com • CNNfn- www.cnnfn.com • CNBC- www.cnbc.com • EDGAR Database of Corporate Information- www.sec.gov/edgarhp.htm • Yahoo! Finance- http://finance.yahoo.com • Google Finance - http://finance.google.com/finance

  46. Playing the Stock Market Game Online Demo

  47. Inside SMG WORLDWIDE (Team Pages) The blue Trading tab contains all the functions necessary to compile research and make trades.

  48. Account Summary Check Account Summary and Transaction Notes for the status of your account balance and the trades you have entered. This team has used some of its “margin” “Min Maintenance” is 30% of the team’s long + short value. If the teams total equity were to fall below this number, they would receive a margin call.

  49. The math….. 140,710 / (281,420 + 0) = 50% 146,560.56 – 140,710 = 5,850.56 84,426 / (281,420 + 0) = 30%

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