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

What is the Russell 2000 Index?

The Russell 2000 Index is a collection of US stocks 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, tthe 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-cap 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 the how the S&P 500 is for larger stocks.

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.

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 sectors. 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 or invest in the Russell 2000 Index

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

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

Spread betting is completely tax-free, while with CFDs profits can be offset against losses for tax purposes.¹

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 what the index’s price will do at a future date.

If you’d prefer to invest in the Russell 2000 Index instead, you can do so with us using our share dealing platform. With investing, you’ll use our platform to buy shares in Russell 2000 companies themselves. You’ll be a shareholder, eligible to receive dividends and other shareholder rights or privileges. Or, you can invest in an ETF that tracks the index’s performance. Either way, you’ll take ownership of the asset and will make a profit if the Russell 2000 increases in value.

Learn more about the Russell 2000 Index

The key to successful trading or investing in 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, we have a host of resources for you to educate yourself with. 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 £10,000 in virtual funds.

Choose whether to trade or invest in the Russell 2000

With us, you can gain exposure to the Russell 2000 via both trading and investing, and you’ll decide on which type of position to open depending on your personal preferences.

If you choose to trade the index using spread bets or CFDs, you won’t take ownership of any underlying assets (ie the actual stocks of Russell 2000 companies themselves). This means that you can speculate on the index’s price movements in either direction. If you think the index price will go up, you’ll choose to ‘buy’ and will ‘sell’ if you think it’ll go down.

Both spread bets and 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.

If you’d rather own stocks in a Russell 2000 company outright, or in an ETF tracking the index, you’ll invest instead via share dealing.

Unlike trading, investing in Russell 2000 stocks or ETFs means that you’ll pay the full value of your position upfront. However, because investments are not leveraged, your risk of loss is also capped at this amount.

Open an account or practise on a demo

Want to open an account and begin trading the Russell 2000? With us, you can open three different types:

• Spread betting account
• CFD trading account
• Share dealing account

You can open and fund one, two or even all three types of accounts to begin trading or investing in the Russell 2000.

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 decide on the size of your first trade or investment. To do this, input the amount that you’d be comfortable risking and potentially losing if the market moves against you.

If you’re trading with us, 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

If you’re ready to open your first position, you can 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.

Footnotes
¹ Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.