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The Stock Market Game Program


The Stock Market Game Program A classroom activity for students grades 4 - 12 How Does the Competition Work? Example: Short Selling and Covering I am borrowing the ... – PowerPoint PPT presentation

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Title: 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
  • The game runs for ten weeks in the fall, spring,
    and late spring. A new whole year game is also

SMG Rules
  • Transactions are made at the SMG WorldWide site
  • Trades are processed in 5 20 minutes

SMG Basics
  • 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 Rules
  • Stock and cash dividends and splits are
    automatically computed into team portfolios
  • Portfolios are updated and available on a daily
  • 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
  • 7 annual rate of interest is paid on negative
    cash balances (borrowed money)

  • Trades are made based on prices at time of order
    (market order).
  • Trades entered after 400 p.m. will are made at
    the next days opening price.
  • You may trade only stocks and mutual funds that
    have traded within the last 7 days.

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

How Does the Competition Work?
Teams compete within a geographic region and on
six levels
SMG Levels
  • Grades 4-6
  • Grades 7-8
  • Grades 9-12
  • Post-Secondary
  • Youth Groups
  • Adult

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General Information
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
  • 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

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
  • Best for overnight or weekend trades. The limit
    trade is executed only once.

General Information
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

Example Short Selling and Covering
General Information
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 Ive got cash.

Example Short Selling and Covering
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 didnt spend.
  • I get the difference between the high price and
    the low price minus the brokerage fees.

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
Short Positions A Short Position is a stock you
borrowed from the broker and sold
General Information
Total Value of Long and Short Positions Cash
General Information
  • Buying on Margin
  • You may borrow funds using the stock in your
    portfolio as collateral for the loan
  • Interest charged at 7

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

Investment Basics
The RISK to RETURN Relationship
The RISKIER the Investment - The HIGHER the Return
Investment Basics
  • The Difference Between Stocks, Bonds, and Mutual
  • StocksYou own a piece of the company
  • You make money if the company does well
  • BondsYou loan money to a corporation or
  • You earn the interest
  • Mutual Funds ETFsYou own one portion of a
    collection of stocks, bonds, or other securities

Investment Basics
The Three Main Markets NYSE New York Stock
Exchange Oldest, largest, best-known
stocks NASDAQ (National Association of
Securities Dealers Automated Quotations) Large,
mid-sized, and small growth companies AMEX
American Stock Exchange Mid-sized growth
Investment Basics
The Difference Between Large and Small Companies
  • Large
  • Often have high prices
  • Low risk of failure
  • Some pay regular dividends
  • Small
  • Potential for growth is greater
  • Generally prices are lower

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

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 OTCBB
    (Bulletin Board) stocks are either penny stocks
    or may hold bad credit records.

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

  • 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.

Investment Basics
Other Terminology Blue Chipsthe largest and
most profitable stocks Bull Market a market
that is rising Bear Marketa market that is
Investment Basics
Why long term investing is the best route?
DJIA over last 33 years
Investment Basics
PE Ratio
Investment Basics
What stocks should I buy?
  • 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.

Where to get more information
  • American Stock Exchange-
  • NYSE-
  • CNNfn-
  • CNBC-
  • EDGAR Database of Corporate Information-
  • Yahoo! Finance- http//
  • Google Finance - http//

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

The math..
140,710 / (281,420 0) 50 146,560.56
140,710 5,850.56 84,426 / (281,420 0) 30
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
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How to Read the Stock Market Page
Stock Table
52 Week High 52 Week Low Stock Div Yield P/E Ratio Sales 100s High Low Close Net Change
49 39 ABC 1.30 3.25 20 3314 40 39 40 ----
80 49 BBA .40 .53 26 73016 77 75 76 1
66 38 CCI 1.20 1.87 9 77723 66 63 64 1
18 13 LLY 1.78 11.12 7 13101 16 16 16 ----
13 8 XYZ ---- 0 62 6 10 10 10 - 1
52 Week High/Low
  • 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

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

  • 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 Days Closing Price
  • Example ABC 1.30/40 .0325
  • or as a percentage 3.25

P/E 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 years
    future expected earnings

P/E Ratio
  • Example ABC 20 P/E Ratio
  • Indicates that ABC is selling for 20 times the
    companys earnings
  • Example XYZ P/E Ratio is 62
  • Indicates that XYZ is selling for
  • 62 times the companys 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

  • This represents the highest and
  • lowest selling price of the stock
  • for the day.
  • Example ABC high of 40
  • low of 39

  • 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 Todays Close 76
  • Net Change 1
  • Previous Day 75

Earnings per Share
  • A means of valuing common stock.
  • Part of a firms 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 Todays Close P/E Ratio
  • 40.00 20
  • Earnings per Share
  • ABC 2.00
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