On Fridays, the atmosphere on commodity trading desks undergoes a significant shift. For the first four days of the week, traders focus on making profitable bets.
However, by Friday lunchtime, their attention turns to managing risk until the markets reopen on Sunday evening. The 48-hour period when markets are closed can be particularly challenging for traders holding positions tied to actively traded markets, as they are unable to adjust or rebalance their bets during this time. According to Mustafa Al Niama, former head of digital assets at Goldman Sachs, 'From about lunchtime, 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 consider whether they are comfortable holding their position over the weekend, given the potential for unexpected events.
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 have traditionally been constrained by weekday operating hours. Earlier this year, an unusual event in the oil options market disrupted this long-standing routine.
As tensions between Iran and Israel escalated, traders flocked to crypto exchanges to trade 'perpetual futures' contracts, which are available 24/7. The total value of active contracts on the decentralized exchange Hyperliquid reached a record $1.2 billion on a Sunday when traditional commodity markets were closed. While weekend trading volume is still smaller than on weekdays, it is no longer negligible. This shift may be quietly influencing another aspect of the oil market, with researchers at Energy Aspects suggesting that the growth of perpetual futures on crypto exchanges could change how traders price short-dated West Texas Intermediate crude options.
The implied volatility of WTI contracts, which had traditionally fallen on Fridays, has begun to narrow. Analysts argue that the availability of perpetual contracts allows traders to hedge their exposure over the weekend, potentially leading to increased demand for options.
In theory, this could create new opportunities for traders to capture profits during periods of market chaos. However, finding a competitive edge in trading is challenging, and most traders are likely to remain cautious until continuous trading becomes more widespread. The ability to hedge bets during the weekend is valuable, but it may not significantly impact overall volatility. Instead, traders may be willing to pay a higher price for volatility on alternative venues, given the increased availability of hedging options.
The main obstacle to institutional traders adopting perpetual futures is the lack of meaningful liquidity. While the volume of perps linked to traditional assets has increased, it remains relatively small compared to traditional exchanges. Additionally, large institutions face structural issues, such as the need for 24/7 infrastructure and the limitations of traditional financial systems, which are not designed to operate on weekends. As a result, perpetual futures remain the domain of crypto-native firms, proprietary trading shops, and savvy retail traders.
These instruments are primarily used for basis trading or carry trades, rather than hedging. However, perps are also becoming an important tool for gauging market direction before traditional markets reopen. Traders are increasingly watching crypto markets over the weekend to anticipate where traditional futures may begin trading once the CME opens.
This shift may be the first sign that perpetual futures are influencing traditional markets, not as a replacement, but as an additional source of price discovery. The potential impact of perps on traditional markets remains uncertain, with volumes still modest and big-money institutions watching cautiously.
Nevertheless, there are indications that old habits are changing for traders, who may no longer have to spend time waiting on Fridays. With the possibility of continuous trading hours, some traders can start making money or tracking contracts over the weekend.
As Flow Traders' Hein Tibosch notes, 'For lots of players, 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 involve 24/7 markets, and it is time for trading desks to prepare for this new reality.