As the week draws to a close on Friday afternoons, the atmosphere on commodity trading desks undergoes a significant shift. For the first four days of the week, traders are focused on making profitable trades.
However, by Friday lunchtime, their attention turns to managing risk, as they must tolerate any potential market fluctuations until trading resumes on Sunday evening. The inability to adjust or rebalance bets over the weekend can be a source of considerable anxiety for traders, especially given the potential for unexpected global events to impact markets. According to Mustafa Al Niama, former head of digital assets at Goldman Sachs, 'From about lunchtime, the desk basically stops thinking about making money and starts thinking about what they can live with for roughly forty-eight hours until the Sunday evening reopen.' This ritual is well-known among commodities options traders, who must assess whether they are comfortable holding their positions over the weekend, given the inability to adjust or rebalance their bets during this time. However, a recent development has disrupted this long-standing routine.
In March, the oil options market experienced an unusual spike in volume over the weekend, as traders flocked to crypto exchanges to trade 'perpetual futures' contracts. These contracts, which run around the clock, allowed traders to react to market developments without having to wait for traditional markets to reopen.
The total value of active contracts on the decentralized exchange Hyperliquid reached a record $1.2 billion on March 8, a Sunday when traditional commodity markets were closed. While weekend volume is still smaller than on weekdays, it is no longer negligible.
The growth of perpetual futures trading on crypto exchanges is quietly influencing the oil market, with researchers at Energy Aspects noting that the dynamics of short-dated West Texas Intermediate (WTI) crude options are set to change. The implied volatility of WTI contracts, which had historically fallen on Fridays, has begun to narrow, as traders can now hedge their exposure through perpetual futures over the weekend. This development has implications for the 'weekend effect' in short-dated WTI options, where implied volatility is structurally depressed on Fridays. The availability of perpetual contracts may create an opportunity for traders to capture profits over the weekend, rather than simply sitting on their positions.
However, finding an edge to capture a few basis points of profit remains a challenge, and traders are cautious not to overstate the impact of perpetual futures. The lack of meaningful liquidity is a major reason institutional traders are still hesitant to engage with perpetual futures. The volume of perps linked to traditional assets is increasing, but it remains relatively small from Wall Street's perspective.
Issues with existing infrastructure, such as the need for 24/7 systems and the lack of clearing and settlement rails, also pose a challenge. Large institutions require a different structure for weekend trading, and the financial infrastructure that underpins traditional markets is not yet equipped to support continuous trading. As a result, perpetual futures remain the domain of crypto-native firms, proprietary trading shops, and savvy retail traders. However, these instruments are starting to influence traditional markets, with perpetual markets becoming another source of information for traders before traditional markets reopen.
The shift towards continuous trading is likely to have a significant impact on the traditional market, with old habits beginning to change for traders. As CME's Terry Duffy noted, 'I think that markets will be 24/7 down the road. All markets.'