STOCK MARKET AND INVESTMENT

The term stock exchange comes from the old meat and fish market in London called the Stock Exchange.  Some sources suggest that this market got its name because it was built where a set of stocks- a device for punishing criminals- once stood.

Why would you or anyone want to buy stock?

1.         Yearly income- dividends are paid to those who own stock in certain corporations.  A dividend is a payment designated by the Board of Directors to be distributed among the shares of stock that have been sold.  Any dividend maybe omitted if the company is poor or the directors decide to withhold earnings in order to reinvest in the company. 

2.        Capital Gain- is simply the buying and selling of stocks for profit.  Buy low; sell high.  The capital gain is the profit realized (made) by an investor who makes money on the stocks.  A paper profit would simply be the profit an investor would receive if he were to sell the stocks.

3.        Speculation- true gamblers take great risk but could achieve great rewards by buying stock and selling it quickly to hopefully make huge profits.  A person who would do this type of trading is called a speculator.

Where does the buying and selling of stocks take place?

Wall Street is the heart of the financial district in New York City.  Many brokerage firms and exchanges are located in this area.

The Dow-Jones Industrial Average is not really an average.  It is the sum of the closing prices of 30 selected stocks.  The 30 stocks represent major industries on the NYSE.  The  performance of these stocks is thought to be representative of all of the companies on the NYSE.  In 1999, the DJIA ( Dow-Jones Industrial Average) broke the 10,000 mark.  This was truly a historical event.  As early as 1995 the DJIA was only at 4,000.  The DJIA is the most popular and widely publicized measure of stock market performance on the NYSE (New York Stock Exchange- which is the largest stock exchange; AMEX- American Stock Exchange is the second largest.)

Stocks that are listed on a stock exchange and traded are called listed stocks.  If the stock is listed a person who wants to buy or sell the stock will go through a stoker broker.  The broker places the customer’s order for a percentage of the total buy price or sell price.

Stocks are bought and sold on either on stock exchanges or on the OTC (Over-The-Counter-market).  OTC trading is where most of the stocks are traded in the United States not on the exchanges.

OTC stocks are not listed; usually do not pay dividends; and represent small or new companies. A stock certificate shows ownership or equity in a particular corporation.  One who owns shares of stock is called a shareholder or stockholder.

People who play the market can fall into 2 categories:

1.              Bear- is a person who believes that stock prices will go down; a “bear market” is a market of declining prices.

2.             Bull- is a person who believes stock prices will rise; a “bull market” is a market of rising prices.  We have been in a bull market for nearly 10 years.

Many of you have heard the term “don’t put all your eggs in one basket”.  What do you think that would apply to about the buying and selling of stocks?

Diversification is good business practice just in case one or more of your stocks are not doing well; you will not lose all of your money.  Remember you can only lose if you sell, the corporation goes bankrupt and must liquidate the business and you can only lose that amount that you have invested.

 What is the difference between a stock and a bond?

A stock shows ownership in a corporation.  The more shares of stock you own the more power you have.  A bond is an IOU. The person who invests money in a bond is lending a corporation or government a specified sum of money that must be paid back to the investor within a specified time and with interest.

Types of stocks:

Common Stock characteristics:

1.              represent permanent ownership in corporation

2.             best known type of stock

3.             owner exercises greater control of corporation

4.             owner receives greater rewards than preferred stockholders

5.             owner has greater risk than do preferred stockholders

6.             owner can vote (one vote per share- 1000 shares = 1000 votes)

7.             owners are the last to get paid in cases of liquidation

8.             owners are the last to get paid dividends

9.             dividends are not fixed

10.         common stock is also called “Capital Stock” if a company has no preferred stock

Preferred Stock Characteristics:

1.              receive dividends before common stockholders get theirs

2.             get paid before common stockholders in case of liquidation

3.             dividends are fixed ( can’t go up or down with the fortune of the corporation)

4.             owners take a lesser risk than common stockholders

5.             owners do not get to vote

6.             owners have less control of the corporation than do common stockholders

7.             preferred stock is callable by the corporation ( not permanent ownership by owner)

How are stocks sold to the public?

When a company first offers its stock for sale, the price and number of shares offered is determined by an Investment Bank based on the company’s financial record.

The price stocks and bonds sell for in the market or exchange is determined by supply and demand.

Anyone with enough money can buy stocks.  The broker will conduct the transaction for the individual for a fee.  Starting in the mid 1990’s many people who normally would not buy stock started investing due to such high prices of stocks.  American On Line for example has made many middle class Americans rich over night.  Day trading on the computer has also become very popular but is costly and risky.

Remember playing the market is very risky.  Having luck on your side and knowledge of the stocks is good idea.

To make sure that stock deals are legal, the SEC (Securities and Exchange Commission) which is an administrative agency of the Federal Government administers laws and acts regulating and governing the Stock Market.

Some people borrow to buy stock.  This is called buying on Margin.  The margin is the amount paid by the customer when he uses credit to buy a security. The balance is loaned to him by the broker.  The Federal Reserve determines how much credit is allowed.

TERMS TO KNOW

1.              Proxy- written authorization given by a shareholder to someone else to represent him and vote his shares of stock at a stockholders meeting.

2.             Price-Earnings Ratio (P/E)- this ratio represents the confidence investors have in a stock.  Mathematically, it is the relationship between the market price and the earnings per share.  Usually the lower the ration, the better the company or investment.

3.             Split- the division of the outstanding shares of a corporation into a larger number of shares.  This would increase the number of shares a stockholder own.  Example- 3-for-1 split- if one owns 100 shares, after the split the person would own 300 shares.  The value of each share would decrease by 1/3.

4.             Yield- also known as return.  The dividends paid by the company expressed as a percentage of the current price of stock. 

5.             52-Week High- is the highest price the stock sold for during the last 52 weeks.

6.             52-Week Low- is the lowest price the stock sold for during the last 52 weeks.

7.             Sales per 100 or 1000- is the number of shares traded on a given day.  Example: 345 would translate to 34500 shares traded if by 100’s or 345,000 shares traded if by 1000’s.

8.             High- a particular day’s highest price for a share of stock.

9.             Low- a particular day’s lowest price for a share of stock.

10.         Close or Last- the price a share of stock was at the end of the business day.

11.           Net Change- is the amount the price of a share of stock increased or decreased from the previous day’s closing price.

Stock Market Game: 
Have you ever invested in the stock
market? Maybe you've heard of
someone who made a lot of money
buying and selling stocks – or lost
money the same way!

During this class, you'll have some
firsthand experience with a stock market game where everyone in class starts with the same amount of money. But where everyone finishes – well, that's a story that hasn't been written yet.

What You'll Learn

How to Select Stocks

     Company Information

--

--Stock Basics and Business/Investment Glossaries

--

--Financial and Investment News and Features

Barron's Online (http://online.barrons.com/home-page)
CBS Market Watch (http://www.marketwatch.com/)
CNNfn: the financial network (http://money.cnn.com/)
Moneyminded (http://www.moneyminded.com/index.htm)
Nightly Business Report (http://www.pbs.org/nbr/)
Reuters Financial News (http://biz.yahoo.com/rf/)
USA Today Money (http://www.usatoday.com/money/default.htm)
CNET Investor  (http://finance.bnet.com/bnet) Focuses on technology industries,
such as "Internet," "Semiconductors" and "PC Hardware"
Wall Street City (http://www.investools.com/)
Worth Online (http://www.worth.com/)

 ---Live Stock Market Updates

Instructions for Stock Market Game

1. Go to Internet Explorer
2. Go to http://vse.marketwatch.com/Game/Homepage.aspx
3. On the right hand side of the page you will see a box that says “Log in or Register to Play VSE” Click on where it says “Please Register”
4. Enter the Information needed
   1. Email (An e-mail address not using your real name. If you need to make a new one go to gmail.com)
   2. Password (make it secret so no one can mess with your stocks)
   3. Display Name this should be your Hour and a ScreenName. For Example 1ScreenName would be my display name if I were in 1^st Period. 7ScreenName if I were in 7^th period.
   4. Zip Code: Use the school zip 704
   5. Age (you don’t have to use your real age)
   6. Gender (this doesn’t have to be accurate either)
   7. Then click agree and accept boxes
5. Click Register
6. You will be taken to a new page that will say Invited to join a game? Enter the Game ID below. You will enter The Rebels and click the arrow. (case sensitive)
7. You will then be on a page entitled PR Millionaires
8. Scroll down and where it says Private Game. Enter Password you will enter Simpher123 and click Join Game. DO NOT tell anyone your password.
9. You are now registered!
10. To play you must click on Make a trade in the top left corner, each trade costs a commission of $9.95.
11. A box will appear where you will enter the company’s symbol. For example DIS for Disney.
12. Click Go.
13. You will now be able to buy and sell stock in your companies.
14. The start date for buying stock is 3/23/11. The game ends on 5/12/11.
15. You have $100,000 to spend and must spend as close to that amount as possible.
16. You must diversify, which means that you can put no more than 25% of your money into any one stock!
17. You must liquidate all stocks the last day of the game. (5/12/11).
18. Project is due on 5/13/11.

Stock Market Portfolio

1.       Your team name

2.     Brief company profile for each stock you own during the game.  Include a summary of the company’s products, where it operates, strength and weaknesses-especially in comparison to competitors, and copies of the most recent annual Income Statement and Balance Sheet (obtained from the company’s annual report or other source)

3.     Reasons for buying a stock, both initially and during the game

4.     Reasons for selling a stock during the game

5.     Number of shares of each stock you own at the close of the market each week

6.     Current stock price of each stock you own at the close of the market each week

7.     Detailed record of any buy or sell transactions:

1. Date of transaction
2. Name of company for shares bought/sold
3. Number of shares bought/sold
4. Value of shares after deducting transaction fee
5. A graph of each of the stocks bought and sold

8.     Summary statement at the end of the game stating the total value of your stock portfolio, including the number of shares in each stock and the price per share on the last day of the game.

Rules & Regulations → Virtual Stock Exchange Rules

Your use of Virtual Stock Exchange is governed by game rules. But it's also helpful to be familiar with SEC trading rules. Please browse both pages in this help section to ensure you fully understand the online trading process and how VSE's games are set up.

Virtual Stock Exchange Rules

Trading Hours

9:30 a.m. EST - 4:00 p.m. EST; no after-hours trading is permitted.

Security Types

Trade any stock or mutual fund (only funds with five letters and ending with an X) on the NYSE, AMEX, or Nasdaq. Corporate bonds or government backed securities are not available.

Starting Balance

Starting balance is $100,000 in cash.

Commission

You will be charged a commission fee per stock transaction of any value and size. The default commission is $9.95 per trade.

Interest on Uninvested Cash and Margin

Your un-invested cash will earn a money market fund interest, which will vary depending on prevailing market conditions. This money market rate is usually around 4-6% and is set by the game creator.

Rank

Your portfolios will be ranked against others in your games. To view real-time rankings, click Players & Rank in the My Games area on the left-hand side of any VSE page.

Market Orders Placed During Market Hours

If you make a trade during market hours, your order will generally be confirmed 20 minutes after your order has been placed.

Market Open Orders Placed During Market Hours and During Off Hours

If you place a market open order, the order will be not be executed until the market opens on the next trading day. Only orders placed before the opening bell (9:30 a.m. EST) will be executed that day. All orders placed after (9:30 a.m. EST) will be executed the next day.

Limit Orders Placed During Market Hours and During Off Hours

If you place a limit order (whether during market hours or during off hours) the order is submitted to the appropriate limit order book, where it will wait for the market price to move up to your order price (if it is a sell order) or down (if it is a buy order). Note, in extraordinary situations where the market price overshoots your limit order, your order will be executed to your advantage. Example: If you submitted a limit buy for shares of Company X at 120 and the market ask is only 119, you will purchase your shares at 119 each. On the other hand, if you submitted a limit sell for shares of Company X at 117 while the market bid is 118, you will sell your shares at 118 each.

Two Kinds of Limit Order Terms

There are two kinds of limit orders you can specify:

1.       Day orders

2.      Good until canceled orders

Stop Loss Order-(not an option)

Stop loss orders ("stops") are limits set by traders at which they will automatically enter or exit trades - an order to buy or sell is placed in the market if price reaches a specified limit.

A stop loss order is set to limit a trader's potential loss. A stop is placed below the current price (to protect a long position) or above the current price (to protect a short position).

Example: If you purchase 1,000 shares of Company Y at $90 you may decide to place a stop loss order. Example: Sell 1,000 shares IF price is less than or equal to $85. If price falls to $85, your order will be activated. Your loss is limited to $5.00 per share (plus commission).

Sell Short-(Not an Option)

When you want to bet against a stock by selling it short, you are selling the stock first and then buying it back later. When short selling a stock, you will be required to post collateral in your short account. This is to protect the broker in the event the shorted stock sees extraordinary gains in value and you are unable to buy it back. When buying back a stock you've shorted, you need to specify "buy to cover."

End of the Portfolio Value

Your final game ranking will depend on the portfolio value at the end of the investment simulation. At that point, your portfolio value is calculated from closing prices on the final day of your trading session added onto whatever un-invested cash you hold.

Performance Evaluation

While real fund managers are evaluated by the returns achieved by their portfolios adjusted for the risk profile, the VSE portfolio ranking ranks performance absolutely and does not adjust for the risk of the portfolio.

Rules & Regulations → Trading Rules

Here's a brief overview of how your simulated orders are executed on Virtual Stock Exchange.

Note: All trades are based on 20-minute delayed pricing information per exchange regulations.

Market Open Orders

All Market Open orders placed before the opening bell (9:30 a.m. EST) will be executed, based on the opening price, at or around 9:50 a.m. assuming there is sufficient Market Volume for the order. If there is insufficient volume for the order to be executed or an opening price has yet to be established (i.e. there is zero volume), we will attempt to complete the order every 20 minutes until the market closes. If the stock does not generate sufficient trading volume by the closing bell, the order will expire. Also, we will partially fill orders whenever possible (the remaining un-purchased shares will NOT be filled at a later time for Market Open orders).

To view your Open Orders, access the portfolio within the desired game using the navigation on the left-hand side of any VSE page. Once in the Portfolio, click Orders, just beneath your portfolios summary.

Market Close Orders

All Market Close orders will be executed at or around 45 minutes after the closing bell (4:00 p.m. EST), assuming there is sufficient Market Volume for the order. If there is not sufficient volume to complete the entire order, we will partially fill whenever possible. If there is no volume, the order will expire.

Market Order Execution

We strive to execute all orders within 20 minutes. It is possible that, during periods of extremely heavy trading, orders may take slightly longer to confirm.

Market Volume

All game creators have the ability to determine the volume level at which users within the game may trade securities. (Read My Games → Advanced Settings help page.) This volume is based on the actual volume of the stock. VSE users cannot purchase more shares than specified in the Game Rules (exceed the Market Volume %). Example, a game you are competing in has a trading volume allowance of 100%. If you are interested in buying stock in Company X, and it has a trading volume of 100,000 shares at the time the user was placing a trade, you would be able to buy up to a maximum of 100,000 shares. If you place an order that exceeds the actual trading volume, VSE will partially fill the order to the maximum volume limit. The remaining shares will expire.

Buying Power

Users can purchase securities with their available Buying Power (available cash plus margin allowance). You will see your Buying Power listed when you request to make a trade. If you should place multiple orders that, if all were to be executed, would exceed your Buying Power, VSE executes the trades in the order placed, until the Buying Power is depleted. Remaining orders are expired. Sometimes, users place multiple orders that, if all were to be executed, would exceed their Buying Power. For example, say a VSE user has $1,000 available in cash, and the user places 10 different orders for stocks that cost $500 each for a total cost of $5,000. VSE will execute the first two orders placed, and will expire the remaining eight orders. To view your Open Orders, access the portfolio within the desired game using the navigation on the left-hand side of any VSE page. Once in the Portfolio, click Orders.

Mutual Funds

Closed vs. Open Funds

Open-end funds are generally referred to as mutual funds. They have a varying number of outstanding shares, hence the name open-end. When you buy shares of a mutual fund, you buy from the fund. When you sell shares of a mutual fund, you sell to the fund. The fund must give you cash, decreasing the net assets of the fund. All open-end mutual fund orders will be placed at the current trading day's closing Net Asset Value or Public Offering Price, which is calculated once per day after the close of trading, 4:00 p.m. EST. The order entry cutoff time for open-end mutual funds is 4:00 p.m. EST, orders entered after the cutoff time will be placed the following business day. VSE will execute all Open-end mutual fund orders approximately 7:30 p.m. EST.

Closed-end funds are not mutual funds. They are commonly known as investment trusts. They raise funds only once in the primary market through an Initial Public Offering (IPO) and then they trade on the Secondary Market. When you buy shares of a closed-end fund, you are buying from another existing investor, not the fund itself. When you sell shares of a closed-end fund, you are selling to another investor and not the fund. Closed-end funds trade on all major exchanges, including NYSE, AMEX and Nasdaq. To trade closed-end funds enter the Symbol and type of buy on the Trade Stock page. VSE will execute all closed-end mutual fund orders within 30 minutes of being placed, assuming there is sufficient Market Volume.