By Friday afternoons, the atmosphere on commodity trading desks undergoes a significant shift. For the first four days of the week, traders focus on generating profits from their investments. However, by Friday lunchtime, their primary concern becomes managing risk until markets reopen on Sunday evening. The possibility of unexpected events, such as geopolitical tensions or surprise announcements, can lead to significant market fluctuations during this period.
As a result, traders must carefully assess their positions and determine how much risk they are willing to tolerate until trading resumes. According to Mustafa Al Niama, former head of digital assets at Goldman Sachs, 'From about lunchtime, the desk essentially 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 familiar to every commodities options trader, who must consider whether they are comfortable holding their position over the weekend, given the inability to adjust or rebalance their bets during this time.
Terry Duffy, chairman and CEO of CME Group, notes that 'Risk, geopolitical or not, does not know what day of the week it is.' Despite this, markets have traditionally operated on a weekday schedule, with traders planning ahead for potential weekend and after-hours catastrophes as part of their job. However, a recent development in the oil options market has disrupted this long-standing routine.
As tensions between Iran and Israel escalated, traders flocked to crypto exchanges over the weekend to trade derivatives contracts known as 'perpetual futures,' which operate around the clock. The total value of all 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.
This shift highlights the emergence of a 24/7 venue for oil derivatives trading, which is not yet available in traditional finance. Researchers at Energy Aspects note that the dynamics of pricing short-dated West Texas Intermediate (WTI) crude options are set to change due to the growth of perpetual futures on crypto exchanges. For years, implied volatility for WTI contracts has decreased on Fridays, as traders were reluctant to pay for protection through options or derivatives that they couldn't actively manage while markets were shut.
However, with the availability of perpetual contracts, traders can now hedge their exposure over the weekend, potentially leading to an increase in implied volatility. 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 has also led to an increase in trading volume over the weekend, with some traders using these contracts to gauge how the market will trade when it opens after the weekend. Hein Tibosch, head of digital assets OTC and product at Flow Traders, notes that perpetual markets have become another source of information before traditional markets reopen.
The trader at the proprietary market-making firm describes a similar shift, stating that traders increasingly watch crypto markets throughout the weekend to gauge where traditional futures may begin trading once the CME opens. This development may be the first sign that perpetual futures are starting to influence traditional markets, not as a replacement for CME, but as another source of price discovery while the rest of the market sleeps.
The impact of perpetual futures on traditional markets remains uncertain, with volumes still modest and big-money institutions cautiously watching. However, there are signs that old habits are already beginning to change for traders, with some no longer having to spend time waiting over the weekend. As Flow Traders' 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 indeed be 24/7, with markets operating around the clock. As CME's Duffy states, 'I think that markets will be 24/7 down the road.
All markets.'