Market Maker is a complete stock market simulation, cleverly hidden in a deck of cards.
In Market Maker, you will buy and sell shares of a single company’s stock with other players.
At the beginning of every game, the stock price starts at 100, and each card moves the price up or down.
100
=99 …
99
=104… 104
=97
Most Market Maker cards have a news headline on them. These headlines represent real corporate, government, technology, economic, and other events that have affected the prices of real stocks in the market.
Each player gets 2 private cards, and 5 cards are dealt face-down to the table.
Do Your
Research
The 2 private cards you were dealt are your Research Reports, and the information on them will move the stock price up or down, depending on whether the news is good or back for shareholders.
Just like the company research reports published by real analyst firms, this information gives you a trading advantage over others with less knowledge.
In this example, your private cards suggest that the stock price will go from 100 down to 98 and then up to 103.
100
= 98…
98
= 103
Now that you have done your research, to the best of your knowledge, you believe the stock is worth 103.
At the end of the of the game, everyone’s Research Reports will be made public, and the final closing price will be 100, plus or minus all the cards that were dealt.
Buying Low and
Selling High
In Market Maker, you will buy and sell shares of a single company’s stock with other players. To make a profit when trading stocks, you will need to buy shares at a low price and sell them at a higher price. When you buy low and sell high, the difference between those 2 prices is your profit. (In real stock trading, you usually need to pay taxes and other fees, but no need to worry about those in our game.)
Let’s see how buying low and selling high works when the price goes up.
When trading stocks, unfortunately the price doesn’t always go up. If you Buy at a High price and Sell at a Low price, you will lose money.
But, if you think the price is going to go down, there is a way to make a profit. You can Buy Low/Sell High in reverse order, selling shares while the price is high, then buying shares when the price is lower. Let’s see how that works.
Your Buy and
Sell Prices
Now that you understand Buy Low/Sell High, you are able to answer the most important questions when trading stocks.
The first is: What is the highest price you will pay to buy shares right now?
In order to Buy Low and Sell High – or to Sell High and Buy Low – you need to have an opinion of how much the stock is worth. Using our earlier example, to the best of our knowledge, the stock will be worth 103 at the end of the game.
100
= 98…
98
= 103
If you could Buy Low now, at a price of 102 or less, you could Sell High later at 103 and make a profit. Any more than 102, you won’t make any money.
Great: Sell 103 – Buy 93 = Profit of 10
Good: Sell 103 – Buy 102 = Profit of 1
Zero: Sell 103 – Buy 103 = Zero Profit
Bad: Sell 103 – Buy 104 = Loss of 1
Awful: Sell 103 – Buy 113 = Loss of 10
This means the highest price you are willing to pay to buy shares right now is 102. Your Buy price is 102.
Great: Sell 103 – Buy 93 = Profit of 10
Good: Sell 103 – Buy 102 = Profit of 1
Zero: Sell 103 – Buy 103 = Zero Profit
Bad: Sell 103 – Buy 104 = Loss of 1
Awful: Sell 103 – Buy 113 = Loss of 10
The second question looks at this from the other side. Since your cards suggest the final price will be 103, What is the lowest price you will sell your shares right now?
If you could Sell High now, at a price of 104 or more, you could Buy Low later at 103 and make a profit. Any less than 104, you won’t make any money.
Great: Sell 113 – Buy 103 = Profit of 10
Good: Sell 104 – Buy 103 = Profit of 1
Zero: Sell 103 – Buy 103 = Zero Profit
Bad: Sell 102 – Buy 103 = Loss of 1
Awful: Sell 93 – Buy 103 = Loss of 10
This means the lowest price you will sell your shares right now is 104. Your Sell price is 104.
Great: Sell 113 – Buy 103 = Profit of 10
Good: Sell 104 – Buy 103 = Profit of 1
Zero: Sell 103 – Buy 103 = Zero Profit
Bad: Sell 102 – Buy 103 = Loss of 1
Awful: Sell 93 – Buy 103 = Loss of 10
Your Bid and Ask Prices
It’s important to know that the stock market is very much like a local farmers’ market. It’s a place where people offer to sell items at some price and others offer to buy those items at a price. When a buyer and a seller agree on the price, they will make a trade.
If you imagine this scene as an auction with several buyers, you can think of each buyer Bidding against each other to buy at the lowest price they think is reasonable. Their Bid is their Buy price. You can see that the person with the highest Bid/Buy price will pay more, but they have the best chance of making a trade.
In our card game/simulation, since you think the final price will be 103, you will Bid to Buy shares at 102. In the stock market, we say your Bid is 102.
Great: Sell 103 – Buy/Bid 93 = Profit of 10
Good: Sell 103 – Buy/Bid 102 = Profit of 1
Zero: Sell 103 – Buy/Bid 103 = Zero Profit
On the other side, you can imagine a scene with several sellers, each Asking to sell for the highest price they can get. Their Ask is their Sell price. You can see that the person with the lowest Ask/Sell price will make less money, but they have the best chance of making a trade.
In our card game/simulation, since you think the final price will be 103, you will Ask to Sell your shares at 104. In the stock market, we say your Ask is 104.
Great: Sell/Ask 113 – Buy 103 = Profit of 10
Good: Sell/Ask 104 – Buy 103 = Profit of 1
Zero: Sell/Ask 103 – Buy 103 = Zero Profit
The Market
Maker
In the real stock market, it’s possible that a stock price could get low enough that every trader wants to Buy Low, and there is absolutely no one wanting to sell.
On the other hand, it’s also possible that the price could get high enough that every trader wants to Sell High, and there is absolutely no one wanting to buy.
To help with this problem, stock markets can assign a Market Maker, otherwise known as a Specialist. The Market Maker / Specialist agrees to always make a market, that is, they agree to always offer both a Buy/Bid price and a Sell/Ask price.
So, even if there are no other buyers, the Market Maker will buy. And, even if there are no other sellers, the Market Maker will sell. By providing both a Buy/Bid and a Sell/Ask price, the Market Maker is single-handedly making a market. Note that the Market Maker needs to have a stockpile of items to sell, in case several buyers want to trade with them at their Ask/Sell price.
Let’s see how that might work in
our simulation. Imagine you are a Market
Maker, and you have the same cards we worked with earlier. You think the final price will be 103.
100
= 98…
98
= 103
As we found before, to make a profit when you Buy Low, your Buy/Bid price will be 102 or less.
Great: Sell 103 – Buy/Bid 93 = Profit of 10
Good: Sell 103 – Buy/Bid 102 = Profit of 1
Zero: Sell 103 – Buy/Bid 103 = Zero Profit
We also found that to make a profit when you Sell High, your Sell/Ask price will be 104 or more.
Great: Sell/Ask 113 – Buy 103 = Profit of 10
Good: Sell/Ask 104 – Buy 103 = Profit of 1
Zero: Sell/Ask 103 – Buy 103 = Zero Profit
As the Market Maker, you would make this Offer: Bid/Buy at 102 and Ask/Sell at 104.
You can abbreviate this as: Bid 102, Ask 104
Once you get very comfortable with making an offer, you can just say: 102,104
Note that the difference between your Sell/Ask and your Buy/Bid in your offer is 2. This difference is called your Spread.
Market Maker offer: Ask/Sell 104 – Bid/Buy 102 = a Spread of 2
Let’s Recap
You have read the important company information in your Research Reports…
You’ve decided how much you think the stock is worth…
100
= 98…
98
= 103
You understand how to Buy Low then Sell High when the price is going up…
And you know how to Sell High then Buy Low when the price goes down.
You set the price you’re willing to Bid to Buy shares of stock…
Great: Sell 103 – Buy/Bid 93 = Profit of 10
Good: Sell 103 – Buy/Bid 102 = Profit of 1
Zero: Sell 103 – Buy/Bid 103 = Zero Profit
And you set the price you’ll Ask to Sell shares of stock.
Great: Sell/Ask 113 – Buy 103 = Profit of 10
Good: Sell/Ask 104 – Buy 103 = Profit of 1
Zero: Sell/Ask 103 – Buy 103 = Zero Profit
You also understand the Market Maker’s role in a stock market, that a Market Maker offers both a Bid/Buy and an Ask/Sell, and that the difference between their two prices is called a Spread.
Market Maker Offer: Ask/Sell 104 – Bid/Buy 102 = a Spread of 2
Congratulations!
You now understand the
basics of stock trading and how a stock market works!
You are ready to begin
playing Market Maker®,
The Game of Active Traders™!
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