Russell 2000

Russell 2000 brokers offer trading opportunities in the small-and medium-cap equities market in the US. The index is considered the benchmark for measuring the financial performance of small US firms. This tutorial will rank the best Russell 2000 brokers, with a lowdown of the largest listed companies, the index’s history, and trading tips.

How To Compare Russell 2000 Brokers

The top Russell 2000 brokers provide everything you need to plan and execute trades, from demo accounts and educational resources to online trading platforms with fast order execution.

Important factors to consider when choosing a brokerage with access to the Russell 2000 include:

Instruments

You can trade the Russell 2000 with various instruments such as CFDs, options and futures. Market-cap-weighted ETFs such as the Vanguard Russell 2000 Growth ETF are also available, which track the overall performance of the index.

Different instruments suit different strategies and timeframes. Traders who want to boost their trading power can choose Russell 2000 brokers that offer margin trading through instruments like CFDs and spread betting, or they could pick a leveraged ETF. Longer-term investors may prefer to buy stocks directly or invest in an index tracker.

Futures are sometimes out of retail traders’ reach, but Interactive Brokers’ micro e-mini Russell 2000 futures contracts are more accessible, reducing the minimum stake to a fraction of the typical upfront cost (1/10 typical e-mini futures).

Regulation

It is always safest to choose a Russell 2000 broker that is overseen by a reputable regulator, and for most good UK brokers that means the Financial Conduct Authority (FCA).

However, British investors are not limited to trading with UK-based brokers, and could consider platforms overseen by top-tier bodies such as the US Securities and Exchange Commission (SEC).

One of the most important safeguards to look out for is negative balance protection, which is mandatory for all FCA-regulated brokers. This prevents retail traders from becoming indebted to brokers following a series of bad trades.

It is also worth ensuring that your Russell 2000 broker follows operational best practices by segregating client assets from their own accounts and using advanced encryption systems.

Platform & Tools

Your Russell 2000 broker should support a stable trading platform that provides swift access to the market and timely execution.

Brokers often provide proprietary software, but they may also support third-party platforms like MetaTrader 4 (MT4) or MetaTrader 5 (MT5).

AvaTrade, for example, provides traders with several platform choices including MetaTrader 4, two bespoke apps, and a proprietary web trader.

Tip: you can test Russell 2000 brokers’ platforms through demo accounts to ensure they provide adequate analysis tools and features such as historical stock price data, customisable charts, signals and technical indicators.

Educational Content

Educational resources can be useful for traders of all experience levels, and many good Russell 2000 brokers provide helpful content.

Look for guides to topics that are relevant to the Russell 2000 as well as regular live streams, videos or podcasts to help with general trading strategy.

Expert analysis in the form of price forecasts, quotes, YTD performance metrics, and annual returns information may also improve your hit rate when trading the Russell 2000.

Customer Support

Choose a Russell 2000 broker that has good customer support. Live chat or phone hotlines are important for urgent queries that need a swift response.

Many reputable Russell 200 brokers offer several contact methods; FxPro, for instance, provides clients with 24/5 customer support including a toll-free UK phone number, email, and live chat.

What Is The Russell 2000?

The Russell 2000 is a capitalisation-weighted index that tracks 2000 small-cap US companies.

The index is managed by FTSE Russell Group and its parent index is the Russell 3000, which constitutes the largest 3000 publicly traded stocks in the United States. This is split into the top 1000 companies, measured by the Russell 1000 index, and the remaining 2000 in the Russell 2000.

FTSE Russell rebalances its indices each May using pre-defined criteria including company structure and size. The list of companies is then ranked by market cap with the largest 1000 taking their place on the Russell 1000 index and the remaining companies categorised into the Russell 2000 and alternative indices.

Although the Russell 2000 comprises around two-thirds of the companies in the Russell 3000, it only accounts for around 7% of the index’s market capitalisation.

Since the Russell 2000 is an index, traders cannot buy and sell shares as they would with ordinary stock. Instead, they can invest in an ETF or other fund that tracks the Russell 2000’s performance, or they can speculate on its price movements using derivatives such as CFDs.

Price Chart

History

The Russell 2000 index was established in 1984 by the Frank Russell Company. It was the industry’s first small-cap benchmark measuring the performance of large numbers of small and medium-cap companies in the US.

Today, the index is operated by the FTSE Russell Group.

Indices

There are two sub-indices associated with the Russell 2000 index:

• Russell 2000 Value Index – The index includes Russell 2000 organisations with low price-to-book ratios, a low Institutional Brokers’ Estimate System (I/B/E/S) forecast, and a lower sales per share historical growth across the past five years
• Russell 2000 Growth Index – The index fund includes Russell 2000 companies with a high price-to-book ratio, an elevated Institutional Brokers’ Estimate System (I/B/E/S) forecast, and a high sales per share historical growth across the past five years

Major Stocks

The 10 biggest stocks in the Russell 2000 index by market cap in 2023 were:

1. Emcor Group Inc
2. Iridium Communications
3. Crocs Inc
4. Inspire Medical Systems
5. Saia Inc
6. Kinsale Capital Group
7. Texas Roadhouse Inc
8. Shockwave Medical
9. Rbc Bearings Inc
10. Halozyme Therapeutics

Some other well-known companies in the Russell 2000 index include Southwestern Energy, Avis Budget Group Inc, and Ovintiv Inc.

The largest sectors represented on the index in 2023 were industry with 17.7%, finance with 16.8%, and healthcare with 15.4%.

Good Russell 2000 brokers provide financial metric data for the top 50 stocks, while some cover all listed companies. A comprehensive data offering should include market cap values, performance growth, upcoming announcements and more.

Trading Hours

Trading hours on the Russell 2000 index vary depending on the product and broker.

CME Globex, for example, offers Russell 2000 futures trading from Sunday 6pm to Friday 5pm Eastern Time (GMT-6) with a trading halt between 4:15pm and 4:30pm. Alternatively, the Chicago Board Options Exchange offers trading on Russell 2000 options between 9:30am and 4:15pm (ET).

Some Russell 2000 brokers may also offer premarket and after-hours trading.

Listings

A reconstitution cycle takes place once a year at the end of Q2, when the listings are adjusted to reflect the companies’ performance.

As old firms move out of the index and new firms are introduced in a continuing cycle, the number of holdings within the index will often fluctuate under or over 2000.

Russell 2000 Vs Other Indices

As a small-cap index, the Russell 2000 index has a very different composition to an index like the S&P 500, which tracks the performance of 500 of the largest US firms including giants like Apple, Amazon, and Microsoft, or the Dow Jones, which tracks 30 of the top US companies.

The Russell 2000 index instead measures the share value of lesser-known small-cap firms, so it is more appropriate to compare it to another small-cap capitalisation-weighted index like the S&P 600.

Over a long timeframe, the less volatile S&P 600 has outperformed the Russell 2000, with average returns of 12.8% per year compared to the Russell 2000’s 11.2% per year in the decade up to February 2022.

The S&P 500 tends to perform better than either, with an average annual return of 14.6% over the same period.

Small Cap Risks

Investors tend to turn to small-cap stocks when looking for high-risk, high-return investments. Small-cap stock prices typically increase when an economy grows, but economic uncertainty such as inflation and financial recession usually hit smaller companies harder.

According to a Morgan Stanley publication, over 40% of Russell 2000 listed organisations were unprofitable during the challenging macroeconomic conditions of 2022. Overall, the Russell 2000 index tends to be more volatile as smaller companies are generally less equipped to shield themselves from macroeconomic turmoil.

Economic calendars offered by some Russell 2000 brokers are therefore a useful tool for keeping up to date with upcoming events and political announcements that may impact your positions. This includes reconstitution dates each year and new entries to the market which can create volatility.

Bottom Line On The Russell 2000

Russell 2000 brokers offer an accessible way to speculate on the performance of lesser-known US companies. As a retail investor, you can expect to trade ETFs, CFDs, futures, and options on this small-cap index. And although the added volatility of the Russell 2000 brings risks, this selection of small-cap stocks also offers investment opportunities.

FAQ

Article Sources

Russell 2000 index fact sheet

FTSE Russell indices

S&P Global small cap benchmarks