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About The E-mini Russell 2000® Index

The future is here, the E-mini Russell 2000 Futures Index. What is it all about?

Whenever Americans tune into the nightly business and financial news, they invariably will be given some commentary on the Dow Jones Industrial Average (DJIA) and the Standard and Poor's 500 stock indexes. These two stock indexes represent some of the biggest companies in the U.S. stock market. Indeed, the 30 stocks that make up the DJIA represent about a quarter of the value of the entire U.S. stock market. The S&P 500 makeup 500 of the most widely traded stocks in the U.S. and represent about 70% of the total value of U.S. stock markets.i

But there are other ways of looking at the market to make sense of the overall movements of the Wall Street. In particular are the Russell 3000 and Russell 2000. Respectively, these indexes are made up of the 3,000 largest publicly-traded companies in the U.S. stock market-based on market capitalization-and the 2000 smallest (small-cap) stocks in the Russell 3000. In fact, the Russell 3000 represents approximately 98% of the U.S. equity market. So it may not be surprising given these indexes' breadth that many investments use the Russell Indexes as benchmarks or gauges of their own performance. And while you may not hear your business news commentator talk about the Russell Indexes, more assets - like mutual funds and exchange-traded funds - use the Russell Indexes as gauges than all the other U.S. equity indexes combined.ii

E-mini Russell 2000 Index
Russell 2000 from December 1978 to May 2012 (daily closings)*

As the acknowledged benchmark for measuring the performance of the small-cap stocks, the Russell 2000, is the most widely quoted measure of the overall performance of the small-cap to mid-cap company shares. The average market capitalization for a company in the index is around $1.26 billion while the median market cap is around $528 million.iii

If you look at the list of top holdings within the Russell 200 Index it's likely they are unfamiliar to you. United Rentals and Sketchers are a few familiar names but traders often bypass this index simply because they are companies with which they are not acquainted. And like the S&P 500 and the DJIA, there are much bigger companies garnering more publicity. Thus, most traders are under exposed to this asset class that is potentially faster growing. Studies also show that over time small-cap stocks typically outperform large cap stocks or what is called the small-firm effect.iv

This effect or theory holds that smaller companies have a greater amount of growth opportunities than larger companies and that small-cap companies also tend to have a more volatile business environment. This tends to lead to small-cap stocks having lower stock prices and these lower prices mean that price appreciations tend to be larger than those found among large cap stocks.v

The futures industry is full of theories and studies, so putting those aside, these companies should not be ignored merely because of their size. Traders have a valuable tool with the Russell 2000 Index and any aid within this volatile and risky industry should be used.

*RISK DISCLOSURE: Past results are not necessarily indicative of future results. The risk of loss in futures trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition.*

iWhat Is the Russell 2000? And Why Is It Important? The Motley Fool. The Fool.com. Published 18 June 2012. Web 07 June 2016.

iiRussell 2000® Index. Russell Investments. Russell Indexes. Web 07 June 2016.

iiiHulbert, Mark. Small-Cap Stocks Beat the Market, AQR Study Finds. Barron's. Published 22 Jan. 2015. Web 07 June 2016.

ivSmall Firm Effect. Investopedia. Published 17 Jan. 2004. Web 07 June 2016.

v*Graphic: www.commons.wikimedia.org/wiki/File:Russell_2000.png Published 23 May 2012. Web 07 June 2016.