As the week draws to a close, commodity trading desks undergo a significant shift in focus. By Friday afternoon, traders are no longer concentrated on making profits, but rather on managing risk until markets reopen on Sunday evening. This is because anything can happen over the weekend, from unexpected news to geopolitical events, leaving traders with no control over their positions until trading resumes. According to Mustafa Al Niama, former head of digital assets at Goldman Sachs, 'the desk basically 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 assess whether they are comfortable holding their position over the weekend, unable to adjust or rebalance their bets.
However, a recent development has disrupted this long-standing routine. In March, tensions between Iran and Israel led to a surge in oil options trading, with traders flocking to crypto exchanges to trade perpetual futures contracts over the weekend.
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 trading volume is still smaller than on weekdays, it is no longer negligible. In fact, the share of weekend trading in overall volume has grown by approximately 25% since March. This shift may be quietly influencing another corner of the oil market.
Researchers at Energy Aspects note that the dynamics of pricing short-dated West Texas Intermediate crude options are set to change, thanks to the rapid growth of perpetual futures on crypto exchanges. For years, implied volatility for WTI contracts has fallen on Fridays, as traders were reluctant to pay for protection they couldn't actively manage while markets were closed. However, with the advent of perpetual contracts, traders can now hedge their exposure over the weekend, potentially leading to a decrease in the 'weekend effect' in short-dated WTI options.
In theory, this could create new opportunities for traders to capture profits over the weekend, rather than simply sitting on their positions. Energy Aspects estimates that if a continuous futures contract is available, it would create approximately 40% more hedging sessions over the life of a typical contract. While finding any edge to capture a few basis points of profit sounds appealing, most traders remain cautious, recognizing that the impact of perpetual futures on traditional markets is still uncertain.
The main issue is that institutional traders are not yet participating in perps trading, due to lack of meaningful liquidity and infrastructure. The volume of perps linked to traditional assets is still relatively small, accounting for only about 2% and 4% of the primary futures contract equivalents traded on traditional exchanges in March and April, respectively. Large institutions, such as banks, already have systems in place for traditional market hours, but they would need a different structure for weekend trading. 'Having the option to trade does not mean that people would automatically start doing so,' said Martin Lee, market insights lead at DWF Labs.
'There needs to be a broad shift in operational capacity from institutions and corporations to be able to cater to that.' One of the structural issues is how institutions operate on weekends. Banks are closed on Saturdays and Sundays, making it difficult to collect margin for perps trading mid-weekend. 'You cannot do that until you put the infrastructure in place that you have Monday through Friday,' said CME's Terry Duffy. For now, perps remain in the domain of crypto-native firms, proprietary trading shops, and savvy retail traders.
However, perpetual futures are starting to influence traditional markets, providing a tool for traders to gauge how the market will trade when it opens if news breaks out during the weekend. 'The perps...
will be a pretty good indicator of where the market is heading,' said Hein Tibosch, head of digital assets OTC and product at Flow Traders. Perhaps the biggest impact of perps thus far is that they might be influencing how some traders behave, with old habits beginning to change on Friday afternoons. Traders 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 either by trading or tracking these contracts.
'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,' said Flow Traders' Tibosch. As the crypto industry continues to evolve, it may be that perpetual futures become one of the first ideas to move from crypto to traditional finance, influencing how markets operate and traders behave.