By Friday afternoons, 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 assessing the level of risk they can tolerate until markets reopen on Sunday evening. The possibility of unexpected events, such as news of a new war, election results, or unexpected announcements, can significantly impact their positions.
As a result, traders must carefully manage their risk exposure during this period. 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 potential risks and lack of ability 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 been closed on weekends, and traders have had to plan accordingly.
However, a recent development in the oil options market has disrupted this long-standing routine. In March, tensions between Iran and Israel led to a surge in speculation on oil prices, resulting in a significant spike in volume over the weekend. Traders flocked to cryptocurrency exchanges to trade derivatives contracts, known as 'perpetual futures,' which operate around the clock.
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 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 changing the dynamics of the market. Researchers at Energy Aspects noted that the growth of perpetual futures on cryptocurrency exchanges is likely to impact the way traders price short-dated West Texas Intermediate (WTI) crude options.
The implied volatility of WTI contracts has historically fallen on Fridays, as traders have been reluctant to pay for protection through options or derivatives that they cannot actively manage while markets are closed. However, with the availability of perpetual contracts, traders may be more willing to hold or even buy options they previously would have sold before Friday's close.
This could create new opportunities for traders to capture profits over the weekend, rather than simply sitting on their positions while the underlying prices of the assets move sharply. The emergence of perpetual futures is also providing traders with a tool to gauge how the market will trade when it opens after the weekend, if news breaks out during this period.
Hein Tibosch, head of digital assets OTC and product at Flow Traders, noted that perpetual markets have become another source of information before traditional markets reopen. The trader at the proprietary market-making firm described the same shift, stating that traders increasingly watch cryptocurrency 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 still modest by traditional finance measures, are growing, and big-money institutions are cautiously watching. Whether perpetual futures can actually reshape the traditional market remains uncertain, but there are signs that old habits are already beginning to change for traders.
With the possibility 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.