By Friday afternoons, the atmosphere on commodity trading desks undergoes a significant shift. For the first four days of the week, traders focus on profiting from their bets.
However, by Friday lunchtime, their attention turns to managing risk until markets reopen on Sunday evening. The 48-hour period can be lengthy when traders hold positions tied to highly active markets, and they are unable to take action until trading resumes. According to Mustafa Al Niama, former head of digital assets at Goldman Sachs, 'From about lunchtime, the desk stops thinking about making money and starts thinking about what they can live with for roughly 48 hours until the Sunday evening reopen.' Every commodities options trader is familiar with this ritual. By the end of the week, the question is no longer about the direction of the commodity but whether they are comfortable holding their position if something unexpected happens while markets are closed.
As Terry Duffy, chairman and CEO of CME Group, notes, 'Risk, geopolitical or not, does not know what day of the week it is.' However, markets still largely operate on a traditional schedule. For decades, traders have accepted that planning for potential weekend and after-hours catastrophes is part of their job.
Earlier this year, an unusual event occurred in the oil options market, disrupting this long-standing routine. As tensions between Iran and Israel escalated, oil-linked futures experienced a sudden surge in volume over a weekend in March.
Traders flocked to cryptocurrency exchanges to trade perpetual futures contracts, which operate around the clock. 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 insignificant.
This shift highlights the emergence of a 24/7 venue for oil derivatives trading, which is not available in traditional finance. Researchers at Energy Aspects note that the dynamics of pricing short-dated West Texas Intermediate crude options are changing due to the growth of perpetual futures on cryptocurrency exchanges.
For years, implied volatility for WTI contracts decreased on Fridays as traders were reluctant to pay for protection they could not actively manage while markets were closed. However, this discount has begun to narrow.
Analysts argue that if traders can hedge options exposure through perpetual futures over the weekend, they may be willing to hold or buy options they previously would have sold before Friday's close. In theory, this could create an opportunity for traders to capture profits over the weekend if the market becomes chaotic.
Energy Aspects estimates that continuous futures contracts could create approximately 40% more hedging sessions over the life of a typical contract. The emergence of perpetual futures is not limited to cryptocurrency exchanges.
CME recently announced plans to add smaller-sized 24/7 contracts for WTI crude and gold. Any continuous futures for commodities would help traders hedge their weekend bets and reduce Friday selling pressure. While finding an edge to capture a few basis points of profit is appealing, most traders consider it theoretical until continuous trading becomes more widespread.
Even traders who find the strategy plausible are cautious not to overstate its impact. One trader notes that the availability of perpetual futures allows traders to hedge their bets during the weekend, which is valuable. However, the trader does not believe that volatility has decreased due to the availability of perpetual futures.
The biggest challenge in adopting perpetual futures is not the lack of trading volume but rather the infrastructure to support 24/7 trading. Large institutions, such as banks, have systems in place for traditional market hours but lack the infrastructure for weekend trading.
DWF's Martin Lee notes that having the option to trade does not mean people will automatically start doing so. There needs to be a broad shift in operational capacity from institutions and corporations to cater to 24/7 trading. One of the structural issues is how institutions operate on weekends. Banks are closed, making it difficult to collect margin for perpetual futures trading mid-weekend.
Mysten Labs' Mustafa Al Niama notes that large institutions would need the backing of clearing and settlement rails that move money around the clock. Even when weekend trading is available, much of the financial infrastructure that large institutions rely on still is not.
The biggest challenge may not be keeping the markets open but rather keeping the financial system underneath everything open as well. For now, perpetual futures remain in the domain of cryptocurrency-native firms, proprietary trading shops, and savvy retail traders. These instruments are mostly used for basis trading or carry trades rather than hedging. However, perpetual futures play a crucial role in gauging how the market will trade when it opens if news breaks out during the weekend.
Before perpetual futures, it was mostly a guess how an asset would trade once traditional markets opened. Now, traders at least have a better idea of the direction of their bets after the weekend. The emergence of perpetual futures might be influencing how some traders behave.
For the cryptocurrency industry, it is a significant development, as it may be one of the first ideas moving from cryptocurrency to traditional finance. Whether perpetual futures can reshape the traditional market remains uncertain.
Volumes are still modest, and big-money institutions are cautiously watching. However, there are signs that old habits are already beginning to change for traders. They will still spend the end of the week worrying about the weekend, but with continuous trading hours, some of them may no longer have to spend time waiting. Instead, they can start making money by trading or tracking these contracts.
As Flow Traders' Hein Tibosch notes, 'For lots of players, for example, a hedge fund or quant shop, if you can just have your strategies run instead of five days a week, seven days a week, that's two extra days of trading.' The future of trading may be 24/7, and it is time for trading desks to start preparing to properly staff for an around-the-clock market.