The mood on commodity trading desks undergoes a significant shift by Friday afternoon. For the majority of the week, traders focus on maximizing profits from their investments. However, as the weekend approaches, their primary concern becomes managing risk until markets reopen on Sunday evening. The possibility of unexpected events such as geopolitical conflicts, election outcomes, or surprise announcements can significantly impact trading positions, leaving traders with limited options 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 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,' highlighting the inherent unpredictability of markets. In recent years, the rise of cryptocurrency exchanges has introduced a new paradigm, enabling traders to engage in 24/7 trading activities. The oil options market experienced a notable spike in volume over a weekend in March, as traders flocked to crypto exchanges to trade 'perpetual futures' contracts.
This shift has significant implications for traditional finance, as it challenges the long-standing assumption that weekends are a period of inactivity. Researchers at Energy Aspects suggest that the growth of perpetual contracts on crypto exchanges is altering the dynamics of short-dated West Texas Intermediate crude options, potentially narrowing the 'Friday discount' in implied volatility. The ability to hedge positions over the weekend may lead traders to hold or purchase options they would have previously sold, creating new opportunities for profit.
However, institutional traders remain cautious due to concerns about liquidity and infrastructure. The majority of volume in perpetual contracts is still generated by retail traders and market makers, rather than large institutional players.
As the market continues to evolve, it is likely that traditional finance will need to adapt to the changing landscape, potentially leading to a shift towards 24/7 trading activities.