What is the Russell 2000 Index and how do you trade it?

What is the Russell 2000 Index?

The Russell 2000 Index is an collection of US shares you can get exposure to with us. It can be thought of as the world’s ‘biggest small index’, as it’s comprised of America’s top small-cap stocks by market capitalisation.

Called the US 2000 Index on our platform, the Russell 2000 is actually part of a larger index, the Russell 3000. While most the latter’s weighting is made up of the 1000 biggest public companies in the United States, the Russell 2000 consists of the remaining top small and mid-cap companies.

For this reason, the Russell 2000 is known for being a reliable benchmark for investors of small publicly traded US companies, similar to how the S&P 500 is for larger ones.

How does the Russell 2000 Index work?

The Russell 2000 is weighted by capitalisation, which means that not all companies are weighted equally. Instead, weightings are proportionate to how big each company is in terms of market cap. The price of the index is then calculated using the collective value of these companies’ stock prices.

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Because companies’ market capitalisation changes frequently, the Russell 2000 Index is recalibrated (where the index is rebalanced to best reflect its companies most recent caps) once a year, usually in June.

Components of the Russell 2000 Index

The Russell 2000 is a diverse index made up of many very different companies across several industries. Sectors represented in the index include financial companies, healthcare, industries, technology, energy and real estate, among others.

Some of the most famous components of the Russell 2000 Index include car rental corporation Avis Budget Group, shoemaker Crocs, AMC Entertainment and department store titan Macy’s.

How to trade the Russell 2000 Index

1. Learn more about the Russell 2000 Index
2. Open an account or practise on a demo
3. Choose your position size and manage your risk
4. Place your deal and monitor your position

You can trade the Russell 2000 Index with us by predicting on the performance of the index as a whole via derivatives like CFDs. You can go long or short on (buy or sell) the index’s underlying market price without taking ownership of any assets outright.

You can trade the Russell 2000 index on the spot with continuous, real-time pricing as a cash index. You can also trade it with futures to open a longer-term position speculating predicting what the index’s price will do at a future date

Learn more about the Russell 2000 Index

The key to successful trading on any index is to have thorough knowledge of its workings and what moves its price.

If you’d like to know more about the Russell 2000 Index, try IG Academy for interactive courses for every trading skill level. Then, enjoy some reading on our trade analysis and strategy articles to help hone your skills.

Of course, the best learning is by doing, too – which is why you can open a demo account with us, for free. Here, you can practise and perfect your Russell 2000 Index trading strategy in a risk-free environment with S$200,000 in virtual funds.

Open an account or practise on a demo

With us, you can open a CFD trading account.

CFDs are leveraged products, meaning you’ll put down an initial deposit (called margin) to open your position. This margin will be just a percentage of the amount of your full trade’s size. However, leverage means that your profits and losses calculated on the full position size – so profits and losses can substantially outweigh your initial margin amount.

With CFDs, you can trade the Russell 2000 index on the spot with continuous, real-time pricing as a cash index. You can also trade it with futures to open a longer-term position predicting what the index’s price will do at a future date.

Not ready to trade just yet? You can always perfect your strategy by opening a demo account for free and trading in a risk-free virtual space.

Choose your position size and manage your risk

Once you’ve opened an account, it’s time to open your first trade. Input the amount that you’d be comfortable risking and potentially losing if the market moves against you.

Fortunately, there are ways to manage your risk. You can set up a stop order and limit order to ensure you never lose more than you’re comfortable with. However, remember that this doesn’t prevent the risk of negative slippage, as the market may move faster than it takes to close the position. To avoid this, you’d need to set up a guaranteed stop.

Place your deal and monitor your position

You can now click on ‘place deal’ in the deal ticket.

After this, you’ll need to keep an eye on your open trade. You can also set up trading alerts, so that you’re notified if there’s any changes in market events. Note that it’s your responsibility to monitor your trades, and you shouldn’t rely solely on alerts for any updates on your position.

The Russell 2000 Index summed up

• The Russell 2000 is an index of 2000 small-cap and mid-cap publicly traded US stocks
• The Russell 2000 is a subset of the larger Russell 3000 index and consists of companies, like Avis Budget Group and AMC Entertainment, across various diverse sectors
• With us, you can trade the Russell 2000 Index using CFDs. You won’t own any assets outright, but will instead take a position on the price of the index by going long or short

¹ Based on revenue excluding FX (published financial statements, October 2021)