Introduction to the Russell 2000

The US Russell Index 2000, otherwise known as simply 'the Russell 2000', was founded in 1972 by Frank Russell and, in the modern day, is managed by FTSE Russell, a subsidiary of the London Stock Exchange Group.

With a primary focus on United States small-cap stocks, the Russell 2000 measures the performance of the 2000 smallest companies within the Russell 3000, another index managed by the FTSE group.

When compared to other US small-cap indices, such as the S&P 600 and the MSCI US Small Cap index, the Russell 2000, has almost 2000 constituent stocks, making it among the most comprehensive in terms of small-cap industry coverage.

Naturally, the market typically uses the Russell 2000 to assess the perceived health and future growth potential of US small-cap stocks as a whole.

Contrary to popular belief, however, the Russell 2000 does not contain 2000 stocks, having only 1742 as of September 2021. The reason for this is a self-imposed 'No replace rule', meaning that unlike other indexes, stocks are not replaced by others due to poor performance, insufficient liquidity, or any other reason.

Quick Summary:

• The Rusell 2000 was launched on January 1st, 1984
• As of September 2021, it has 1742 constituent stocks, typical examples being AMC, Intella Therapeutics, Crocs
• Its value is determined by ‘capitalization-weighted’ calculations
  
  

Despite being focused solely on small-cap stocks, by virtue of covering multiple industries, the Russell 2000 can be used as a tool to measure the current performance and future prospects of the US economy as a whole.

Although, by design, the capitalization of the Russell 2000 is much lower than that of other major US stock indexes, 84% of the Russell 2000's average revenue comes from domestic US resources, a much larger share than the Dow Jones or S&P, for example.

In part because of this and also because of the fundamental nature of small to medium-cap stocks, the Russell 2000 can be the first to show signs of recovery in periods of US economic downturn, which can prove to be valuable insight for traders alike.

When comparing the Russell 2000 to the S&P 500, there are many things to consider.

Within the realms of 'traditional trading wisdom', most share the opinion that volatility is greater within small-cap stocks, which, if true, may pose one advantage the Russell 2000 has over the S&P 500 for the average trader.

However, at some points in recent history, empirical data would suggest otherwise.

Prior to the year 2000, the S&P 500 was reportedly more volatile than the Russell 2000, a role that has been reversed since the mark of the millennium.

From the perspective of historical trends, the Russell 2000 is often outperformed by its' large-cap counterparts in periods of economic growth but able to shine in periods of economic instability, tending to perform better than the Nasdaq, Dow Jones, or S&P 500.

One simple method to trade the Russell 2000 index is by using contracts for difference, or CFDs, which, through the use of leverage, allow investors to trade with a small amount of funding. If price is expected to rise, traders can take a long CFD position and a short CFD position if price is expected to fall, making CFDs a good option for both long and short trading.

1. Leverage: When compared to other options, CFDs offer a larger amount of leverage, meaning that you can trade with a relatively small amount of funding while still participating in the ups and downs of the market.
2. Two-way trading: While trading with CFDs, you're able to profit from prices going up or down by buying and selling, respectively.
3. More ways to earn a return: In some scenarios, when holding a CFD position overnight, traders can earn interest.

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