As the week draws to a close on Friday afternoons, the atmosphere on commodity trading desks undergoes a significant shift. For the first four days of the week, traders are focused on generating profits from their investments.
However, by Friday lunchtime, their attention turns to managing risk, as they must tolerate potential market fluctuations until Sunday evening when markets reopen. The possibility of unexpected events, such as geopolitical conflicts, election results, or surprise announcements, can lead to significant market movements, leaving traders unable to respond until trading resumes. 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 assess 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 been closed on weekends, requiring traders to plan ahead for potential weekend and after-hours catastrophes.
However, a recent development in the oil options market has disrupted this long-standing routine. In March, as tensions between Iran and Israel escalated, oil-linked futures experienced a surge in volume over the weekend, with traders flocking to crypto exchanges to trade perpetual futures contracts.
The total value of active contracts on the decentralized exchange Hyperliquid reached a record $1.2 billion on Sunday, March 8, highlighting the emergence of a 24/7 venue for oil derivatives trading. While weekend volume remains smaller than weekday volume, it is no longer negligible, and the growth of perpetual futures on crypto exchanges is influencing the dynamics of short-dated West Texas Intermediate (WTI) crude options. Researchers at Energy Aspects note that the implied volatility of WTI contracts, which had historically fallen on Fridays, has begun to narrow, as traders can now hedge their exposure over the weekend using perpetual futures. This development has significant implications for the 'weekend effect' in short-dated WTI options, where implied volatility is structurally depressed on Fridays.
The availability of perpetual contracts allows traders to capture profits over the weekend if the market becomes chaotic, rather than simply holding their positions. Energy Aspects estimates that continuous futures contracts could create roughly 40% more hedging sessions over the life of a typical contract.
While finding an edge to capture a few basis points of profit may seem like a theoretical opportunity, traders are cautious not to overstate its impact. One trader notes that the availability of perpetual futures provides more touchpoints for managing risk over the weekend, allowing traders to pay a higher price for volatility on a different venue. The growth of perpetual futures on crypto exchanges is also influencing the behavior of traders, with some using these contracts to gauge the direction of the market 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 the same shift, noting that traders increasingly watch crypto markets throughout the weekend to gauge where traditional futures may begin trading once the CME opens. This may be the first signal 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 biggest impact of perpetual futures may be that they are influencing how some traders behave, with the potential to reshape the traditional market. Volumes, although modest by traditional finance measures, are growing, and big-money institutions are watching cautiously.
CME's proposed 24/7 futures contract trading remains uncertain, but there are signs that old habits are already beginning to change for traders. With the emergence of continuous trading hours, some traders may no longer have to spend time waiting and can start making money either by trading or tracking these contracts.
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 be 24/7, with markets open around the clock, and it's time for trading desks to start preparing to properly staff for an around-the-clock market, forgetting the old routine of the 'weekend effect.'