The traditional Friday afternoon mindset on commodity trading desks is undergoing a significant shift. For the first four days of the week, traders focus on making profitable bets, but by Friday lunchtime, their attention turns to managing risk until markets reopen on Sunday evening. However, with the rise of crypto markets, traders can now hedge their positions and react to market developments over the weekend, rather than being forced to wait.
This change is being driven by the growth of perpetual futures contracts, which allow traders to buy and sell assets 24/7. As a result, the traditional 'weekend effect' in short-dated West Texas Intermediate crude options, where implied volatility is depressed on Fridays, is beginning to narrow. Traders can now capture profits over the weekend if the market becomes chaotic, rather than simply sitting on their positions.
While the volume of perpetual contracts is still relatively small compared to traditional markets, it is growing, and some traders believe that the ability to hedge over the weekend is valuable. However, institutional traders are still cautious, citing lack of liquidity and infrastructure as major hurdles. Despite these challenges, the rise of perpetual futures is likely to continue, and may eventually influence traditional markets, as traders begin to use them as a tool to gauge market direction over the weekend.