Find a stock market game that works

For some time I have been searching for a real time stock market trading game that works, one where 99% of the hard-graft is done by the software rather than teachers having to input every change. And also one that is intuitive to the students and which gives them a full array of trading options. VSE Marketwatch has provided a neat solution and within a week of a launch, 152 teams of Year 10 and Year 11 students are trading away in our 2010 stock market competition.

There are obvious limitations to running a stockmarket challenge over a horizon of just ten weeks. It means that there is little chance for share prices to move to reflect fundamentals of corporate performance and the game favours students who are prepared to trade heavily including short-selling of stocks and buying on margin to increase their leverage. But the VSE Marketwatch share trading platform is easy to use and has genuinely taken off with our Year 10 and Year 11 students who are now battling to move up a league table that now runs to five screens!

The competition was launched last week by inviting students to a simple and brief launch event in a lecture room We expected twenty and got over a hundred people there! (Word of mouth provides powerful feedback effects!)

We used the occasion to deliver a couple of short presentations on the basics of the stock market and on some of the key macro-economic factors that might drive US markets in the months to come. Nothing too technical - just a look at the US economic cycle and recent movements in variables such as oil and gas prices, property values and forecasts for the US dollar.

The VSE Marketwatch site allows students to trade in companies listed on US markets (e.g. the Dow Jones, S&P 500 and Nasdaq). This is a constraint for UK users but it opens the eyes of students to the fact that hundreds of global businesses are listed on multiple exchanges - indeed it works better than a narrow focus on the FTSE and it’s constituents. Is there a comparable stock market trading game for the UK exchanges?

Our rules have been kept to a minimum

1/ You have $100,000 fake currency to trade.
2/ Each trade costs $9.95.
3/ The cheapest stock you can buy is $2 (no penny stocks).
4/ You may borrow money at 6% interest.
5/ Your cash will gain interest at 4% annually.
6/ You may not purchase a single stock that exceeds 25% of your total equity in a single month. For example, if you have $100,000 total equity, you may not purchase more than $25,000 worth of a single stock that month. If you wish to purchase more of that given stock, you must wait 30 days, at which point you can make another purchase that does not exceed 25% of your total equity.

Basic guidance on shares given to participating teams

Stocks
Stocks = Equity investments
Stockholder (Shareholder)

Buying a share of stock makes you a partial owner of the company

Issuing Stock
Shares of stock are issued by a company through an Initial Public Offering (IPO)
This creates money / capital for the company
After the IPO, the stocks are traded in a secondary market and the company receives no more money

Value of Stock
2 ways to make money on stocks
Capital gains
(i) Realized Gains
(ii) Unrealized Gains
Dividends

Guide to Google Finance Stock Tables
Highest / Lowest Prices (52 week Hi/Lo)
Gives a an idea of where the stock is priced now in relation to how its been doing

DIV:
Cash dividends per share: estimate of the anticipated yearly dividend per share

Volume:
Number of shares traded in previous day

Google Finance Stock Tables

P/E:
Price to earnings ratio:
Current Price / Earnings per share
Earnings per share = Net Income / Number of Shares Outstanding
An idea of how over or undervalued a stock is
Use to compare relative value among stocks

Example: P/E of 15 means its price per share is 15 times its earnings per share

Volatility
Beta measures volatility (risk) of a stock
Beta:
0: No risk
1: Market risk
Not the sole measure of volatility

Other Ways to Evaluate Stocks
Looking at numbers like:
Book Value: Difference between company’s assets and liabilities
Earnings per share: Company’s net income divided by number of outstanding shares
Payout Ratio: Percentage of net earnings a company uses to pay its dividend

Other Ways to Evaluate Stocks
Looking at information released by the company like:
Annual and Quarterly Reports: covers company’s current performance
Operations: how the company runs, management structure etc.
Financial Statements
Auditor’s Letter: states that financial statements are in order along with other details