Stock Market Game Classroom Presentation

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

Stock Market Game 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.
SMG Basics

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

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

Teams may buy , sell , short sell , or short cover their stocks
Invest in common stocks, mutual funds and ETFs traded on the three major exchanges: American , New York , and NASDAQ Stock Exchanges
SMG Basics

A 2% brokers fee 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
SMG Basics

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
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)
SMG Rules

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.

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
SMG Basics

How Does the Competition Work?

Teams compete within a geographic region and on six levels

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

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
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
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
General Information

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.

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

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

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

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.
Example: Short Selling and Covering General Information

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

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

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

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

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

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.

Investment Basics

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

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

The Difference Between Stocks, Bonds, and Mutual 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 Investment Basics

The Three Main Markets: NYSE : N ew Y ork S tock E xchange Oldest, largest, best-known stocks NASDAQ : ( N ational A ssociation of S ecurities D ealers A utomated Q uotations) Large, mid-sized, and small growth companies AMEX : A merican S tock Ex change Mid-sized growth companies Investment Basics

Large :
Often have high prices
Low risk of failure
Some pay regular dividends
Small :
Potential for growth is greater
Generally prices are lower
The Difference Between Large and Small Companies: 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
Investment Basics

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.

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
Investment Basics

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.

Other Terminology: Blue Chips the largest and most profitable stocks Bull Market a market that is rising Bear Market a market that is falling Investment Basics

Why long term investing is the best route? Investment Basics

DJIA over last 33+ years: Investment Basics

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.
What stocks should I buy? Investment Basics

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

Playing the Stock Market Game Online Demo

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

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.

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

Account Holdings

“ Short Sell” and “short cover” are the transactions used when taking a “short” position on a stock. A short position earns a positive return when the stock price falls . Enter a Trade

How to Read the Stock Market Page

Stock Table - 1 10 10 10 6 62 0% ---- XYZ 8 13 ---- 16 16 16 13101 7 11.12% 1.78 LLY 13 18 + 1 64 63 66 77723 9 1.87% 1.20 CCI 38 66 + 1 76 75 77 73016 26 .53% .40 BBA 49 80 ---- 40 39 40 3314 20 3.25% 1.30 ABC 39 49 Net Change Close Low High Sales 100s P/E Ratio Yield % Div Stock 52 Week Low 52 Week High

Highest and lowest price a share of the stock has sold for in the past 52 weeks.
Example ABC: High was 49
Example ABC: Low was 39
52 Week High/Low

Stock
Varies by Newspaper
Either company abbreviation or ticker symbol
In A-Z order

Div
Annual Dividend per Share of Stock
Based on the rate of the Last Quarterly Payout
Annualized Data
Example ABC: $1.30 per share
Example: XYZ: $0 per share

Yield Percentage
Known as Dividend Yield
A Measure of the Income Produced
by the Stock
Is the Amount of the Dividend
divided by the Price of the Stock

Yield Percentage
Achieved by Dividing the Annual
Dividend by the Day’s Closing Price
Example: ABC 1.30/40 = .0325
or as a percentage: 3.25%

P/E Ratio
PRICE- EARNINGS RATIO
Ratio: latest closing price
of the stock to the latest available annual earnings per share of the firm
Trailing P/E: is what is reported in the financial section of newspapers
Forward P/E: based on forecasting net year’s future expected earnings

P/E Ratio
Example: ABC – 20 P/E Ratio
Indicates that ABC is selling for 20 times the company’s earnings
Example: XYZ – P/E Ratio is 62
Indicates that XYZ is selling for
62 times the company’s earnings

Sales 100s
This represents the volume of transactions on the trading day
Bought or Sold
Presented in hundreds, simply multiple by 100
Example: ABC – 3314
Indicates that 331,400 shares traded

High/Lows
This represents the highest and
lowest selling price of the stock
for the day.
Example: ABC – high of 40
low of 39

Close
This represents the price of the last stock sold for the day
Example: ABC – closed at 40

Net Change
This lists the net change between
the closing price for the stock for
the day and the closing price on the previous trading day
Example: BBA: Today’s Close: 76
Net Change: + 1
Previous Day: 75

Earnings per Share
A means of valuing common stock.
Part of a firm’s profit that is
allocated to each outstanding
share of common stock.
Can be a good indicator of fiscal health

Earnings per Share
Many investors carefully watch
this number
In general, higher earnings per share means better dividend and overall
stock performance.

Earnings per Share
Calculated by dividing the
closing price on the day being
consider by the P/E ratio.
Example: Today’s Close P/E Ratio
40.00 20
Earnings per Share:
ABC – $2.00

Stock Market Game Classroom Presentation

by JosephSam on May 04, 2010

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Stock Market Game Classroom Presentation Presentation Transcript