Looking At The Russell 2000 Index

A Deep Dive into the Russell 2000 Index

What is the Russell 2000 Index, how exactly does it work, and how can you apply it to forex?

As part of our continuing series exploring various markets and indices around the world, today we will take a close look at the Russell 2000 Index. 

Founded in 1984, this index is a small-cap index of the bottom 2,000 stocks listed in the Russell 3000 Index. The Russell 2000 index represents about 8% of the total market profit of the Russell 3000 index.

In contrast with the S&P 500, which is used as the benchmark for large-cap capitalization funds, the Russell 2000 is the standard when it comes to viewing small-cap mutual funds. 

What the Russell 2000 Index Is Made Of

As of 2012, the iShares Russell 2000 index maintained itself as the second most traded exchange-traded fund in the world. 

The index is broken down as 17.78% financial services, 15.53% health care, 15.38% producer durables, 16.64% technology, 12.51% consumer discretionary. 

Access to the index is automatically granted to the largest 2000 companies. 

How to Get In

In order to be considered in the top 2000 company list, a set of criteria must be must: 

-Home country indicators only

-Share descriptions must be compliant

-Trading requirements

-Minimum closing price of $1.00 on the May rank day

-Minimum total market cap of $30 million

-Minimum available share/float requirement of 5% +

-No royalty trust, no US LLCs, no closed, and no investment companies

-Convertible preferred stock or preferred stock are excluded

How the Index is Weighted

The Russell 2000 index is weighted according to market capitalization. 

This means that the part of the index represented by each company is relative to its market capitalization. 

Applying the Russell 2000 to Fx Trading

The reason it’s wise for Forex traders to keep their eyes on the Russell 2000 is that it’s such a good gauge of small-cap stock.

However, this means that it often doesn’t accurately reflect the overall, total stock market. In this sense, it is similar to the S&P 500. 

As we’ve mentioned before, rather than rely on one market alone, it’s wise to diversify your portfolio and invest in multiple funds across multiple categories.

Incorporating the Russell 2000 Index into Your Trading Routine

Like all other indices or indicators, the Russell 2000 makes up only a portion of the available information. The index, combined with other resources can give you a holistic view of the markets and the directions they’re heading in. Take all of these resources into consideration together in order to have the best view of where your money is and might be headed to.

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