By Friday afternoons, the atmosphere on commodity trading desks undergoes a significant shift. For the first four days of the week, traders are focused on profiting from their investments. However, by Friday lunchtime, their attention turns to assessing the level of risk they can tolerate until markets reopen on Sunday evening. The possibility of unexpected events, such as geopolitical tensions or surprise announcements, can significantly impact trading positions over the weekend.
Traders must carefully evaluate their risk exposure, as they are unable to adjust their positions 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. As Terry Duffy, chairman and CEO of CME Group, noted, '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, earlier this year, an unusual event in the oil options market disrupted this long-standing routine. As tensions escalated between Iran and Israel, traders flocked to crypto exchanges over the weekend to trade derivatives contracts called '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 change may be quietly influencing another aspect of the oil market, with researchers at Energy Aspects suggesting that the dynamics of pricing short-dated West Texas Intermediate crude options are set to change due to the growth of perpetual futures on crypto exchanges.
For years, the implied volatility of WTI contracts has fallen on Fridays, as traders are reluctant to pay for protection through options or derivatives that they cannot actively manage while markets are shut. However, with the availability of perpetual contracts, traders can now hedge their exposure over the weekend, potentially leading to a reduction in the Friday discount in implied volatility. In theory, this could create an opportunity for traders to capture profits over the weekend if the market becomes chaotic. 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 emergence of perpetual futures has also highlighted the issue of liquidity, with institutional traders still hesitant to engage in weekend trading due to the lack of meaningful liquidity. The volume of perps linked to traditional assets has increased, but it remains relatively small from Wall Street's perspective. Furthermore, the existing infrastructure is not equipped to handle 24/7 trading, with large institutions requiring a different structure to facilitate weekend trading. 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 crypto-native firms, proprietary trading shops, and savvy retail traders. However, there are signs that old habits are already beginning to change for traders, with some starting to make money or track contracts over the weekend.
As Flow Traders' Hein Tibosch noted, 'If you can have alpha, bring it on.' The future of trading may indeed be 24/7, with markets operating around the clock. As CME's Duffy said, 'I think that markets will be 24/7 down the road. All markets.'