The Stock Market Game Program A classroom activity

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

Investment Basics Stock Market IQ Quiz

Investment Basics True or False 1. Stocks are items found in the storeroom of a grocery store. 2. Only rich people invest in the stock market. 3. Most stocks on the stock market are sold by the United States Government. 4. If the stock market goes up 30 percent one year, it will fall by 30 percent in the next year.

Investment Basics 5. Any stock that goes up in price must eventually come back down. 6. Bears, Bulls, and Pigs are found in the stock market. 7. Stock prices are set by the Securities and Exchange Commission, a regulatory agency of the U. S. government. 8. Stock markets are open on business days around the clock, around the world.

Investment Basics 9. Sometimes companies buy their own stocks on the stock market. 10. It is hard to buy a good stock today because all the good ones have already been purchased. 11. Buying stocks is a sure way to make money. 12. Corporations sell new issues of stock on the New York Stock Exchange.

Investment Basics 13. “Insider” stock trading means that trading stocks takes place inside a building. 14. People can buy stocks on the internet. 15. When the stock market goes up, it causes the economy to grow. From Learning from the Market, © National Council on Economic Education, New York, NY

Stock Market Game Basics

SMG Basics Ø The game runs for ten weeks in the Fall and ten weeks in the Spring Ø Each team begins with a hypothetical $100, 000 Ø Teams may buy, sell, short sell, or short cover their stocks

SMG Basics Ø Teams should have three to five players Ø Only common stocks listed on the American, New York, and NASDAQ Stock Exchanges may be traded

Ø Mutual funds may be traded § 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.

SMG Basics Ø A 2% brokers fee is charged for each transaction Ø Stocks valued at less than $5. 00 per share may not be bought Ø Teams may borrow up to $100, 000 to purchase stocks on margin -- interest is charged

SMG Basics Ø The team with the highest portfolio equity at the end of the game wins Ø Portfolios are not liquidated at the end of the game Ø 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 Ø Ø Ø Grades 4 -6 Grades 7 -8 Grades 9 -12 Post-Secondary Youth Groups Adult

Rules of the Stock Market Game

SMG Rules Ø Teams need Internet access to play Ø Transactions are made at the SMG World. Wide site at: www. smgww. org or http: //stockmarketgame. org/ login. html Ø SMG of PA operates on ‘real time’ trading Ø Trades are processed within 15 – 20 minutes

SMG Rules Ø Stock splits and cash dividends are automatically computed into team portfolios Ø 5% interest is earned on cash balance Ø Portfolios are updated and available on a daily basis Ø Rankings are updated every weekend Ø Stock ticker symbols are used and can be looked up on the game pages

Ø Trades entered after 4: 00 p. m. will be processed at 9: 35 a. m. the following day. Ø ROGUE STOCK RULE – If a stock has not been traded for seven days it will not be accepted and will not be permitted to be traded even though it is on the three major stock exchanges.

General In formation

General Information Buying: Ø Must be for a minimum of 100 shares Ø Must have a closing price of at least $5. 00 per share Ø May set a maximum purchase price limit

General Information Selling: Ø Must already own the stock Ø 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. Ø May set a minimum selling price limit

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: Ø Short selling starts with borrowing a stock from your broker Ø 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 Ø All rules for buying still apply

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

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

General Information Example: Short Selling and Covering Ø 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. Ø 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 Mc. Donalds, their long position is 100 shares. # of shares X current price per share = Value of Long Position

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

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

General Information Buying on Margin: Ø You may borrow funds using the stock in your portfolio as collateral for the loan Ø Interest charged at 7% Ø Initial Margin Requirement = 50%

Borrowing on Margin Ø 50% of value of long and short position is required as collateral (margin requirement) Ø Margin requirement is subtracted from Equity Ø Remainder is matched dollar for total buying power

Playing the Stock Market Game Online Demo

Login into SMG WORLDWIDE Playing SMG

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

Account Summary Playing SMG

Enter a Trade & Pending Transactions Playing SMG Ø It is a good idea to use the Validate Ticker option to ensure you are buying the correct stock.

Investment Basics

Investment Basics Different Types of Investments: Ø Ø Ø Ø Ø Insured Savings Accounts Savings Bonds Certificates of Deposit Treasury Bonds Corporate Bonds Mutual Funds Stocks 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 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: You 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: Large, mid-sized, and small growth companies AMEX: American Stock Exchange Mid-sized growth Ex companies

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

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

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

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

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 Informationwww. sec. gov/edgarhp. htm § Yahoo! Finance- http: //finance. yahoo. com § § §