Question 1

What is the Russell 2000?

Accepted Answer

The Russell 2000 is a market-capitalization weighted index comprised of 2,000 small-cap U.S. stocks. It is often used as a benchmark for the health of small businesses in America. Because of its broad listings some investors prefer it to other indices that are more focused on a specific sector. The 2,000 companies are taken from the bottom of the Russell 3000, an index that includes roughly 98% of all the publically listed U.S. companies. The Russell 2000 is also considered an important bell weather for the U.S. economy since it is focused primarily on domestic companies.

Question 2

Should I trade the Russell 2000?

Accepted Answer

Because it is a good measure of the broader U.S. economy trading the Russell 2000 is a good choice. It can also be used in certain market conditions when the large cap S&P 500 and Dow indices are underperforming. Historically small cap stocks do outperform the broader market, so it is possible to capture larger moves in the Russell 2000 when it begins trending. And small cap companies tend to do better in low interest environments, and with interest rates at historic lows (and likely to remain there for some time), keeping some interest in the Russell 2000 could work in a trader’s favor.

Question 3

What’s the best strategy to trade the Russell 2000?

Accepted Answer

One of the more popular and reliable strategies, which also potentially makes it the best for those looking for winning trades, is to use the Russell 2000 volatility Index to time entries into long Russell 2000 positions. Typically peaks in the Russell 2000 Volatility Index (look for a 20-day or 50-day peak) make for good opportunities to go long the Russell 2000. Confirmation from a momentum indicator like the RSI gives this trade an even better probability of success.

Advantages of trading Russell CFDs