The traditional Friday afternoon mood on commodity trading desks is changing, as traders are no longer solely focused on managing risk until markets reopen on Sunday evening. With the rise of perpetual futures contracts, or 'perps,' traders can now hedge their bets and react to market movements over the weekend, rather than being forced to wait. This shift is being driven by the growth of crypto exchanges, which are providing a 24/7 venue for oil derivatives trading. As a result, the dynamics of how traders price short-dated West Texas Intermediate (WTI) crude options are set to change, with the implied volatility of WTI contracts no longer falling on Fridays.
Instead, traders can now hedge their exposure through perpetual futures over the weekend, potentially creating new opportunities for profit. While institutional traders are still cautious about entering the market, the availability of perps is quietly influencing the oil market, with researchers predicting a change in the way traders price short-dated WTI contracts.
The growth of perps is also giving traders a tool to gauge how the market will trade when it opens after the weekend, with perpetual markets becoming another source of information before traditional markets reopen. As the crypto industry continues to innovate, it may be that traditional finance is influenced by these developments, with the potential for perps to reshape the traditional market. Ultimately, the emergence of 24/7 trading may signal the end of the traditional 'weekend effect,' where traders are forced to wait for markets to reopen.
With the potential for seven-day trading, hedge funds and quant shops may be able to run their strategies continuously, rather than being limited to five days a week.