As the week draws to a close, the mood on commodity trading desks begins to shift. By Friday afternoon, traders are no longer focused on making money, but rather on managing risk until markets reopen on Sunday evening. However, with the rise of crypto markets, this traditional approach is being turned on its head.
Traders can now use perpetual futures contracts to hedge their positions over the weekend, reducing their reliance on traditional markets. This shift has significant implications for the oil market, where traders are using crypto exchanges to trade derivatives contracts. The total value of active contracts on the decentralized exchange Hyperliquid hit a record $1.2 billion on a Sunday in March, highlighting the growing importance of 24/7 trading.
While weekend volume is still smaller than on weekdays, it is no longer just a blip, and traders are starting to take notice. Researchers at Energy Aspects note that the dynamics of how traders price short-dated West Texas Intermediate (WTI) crude options are set to change, thanks to the rapid growth of perpetuals on crypto exchanges. The traditional 'weekend effect' in short-dated WTI options, where implied volatility is structurally depressed on Fridays, is beginning to narrow.
Traders can now hedge their options exposure through the weekend, and this development has implications for the entire market. In fact, Energy Aspects estimates that if a continuous futures contract is available, it would create roughly 40% more hedging sessions over the life of a typical contract. The rise of perpetual futures is not just limited to the oil market; it has the potential to influence traditional markets more broadly. Traders are starting to use perpetual markets as a source of information before traditional markets reopen, and this could be the first sign that perpetual futures are starting to influence traditional markets.
While volumes are still modest, and big-money institutions are still cautiously watching, there are signs that old habits are beginning to change for traders. The emergence of 24/7 trading is forcing traders to rethink their approach to the weekend, and it may not be long before the traditional 'weekend effect' is a thing of the past.