The traditional Friday afternoon ritual on commodity trading desks is changing, as traders are no longer limited by the constraints of a weekday-only market. With the rise of perpetual futures contracts on crypto exchanges, traders can now hedge their bets and manage risk over the weekend, rather than simply waiting for markets to reopen on Sunday evening. This shift is being driven by the growing popularity of perpetual contracts, which allow traders to buy and sell derivatives around the clock. As a result, the long-standing 'weekend effect' in short-dated WTI options, where implied volatility is structurally depressed on Fridays, is beginning to narrow.
Researchers at Energy Aspects believe that the rapid growth of perpetual contracts on crypto exchanges will change the dynamics of how traders price short-dated WTI crude options, as they can now hedge their exposure over the weekend. While the volume of perpetual contracts linked to traditional assets is still relatively small compared to traditional markets, it is growing rapidly, with some exchanges seeing monthly volumes of nearly $200 billion.
However, institutional traders are still cautious about entering the market, citing lack of liquidity and infrastructure issues. Despite these challenges, the rise of perpetual contracts is likely to have a significant impact on traditional markets, as traders begin to use them as a tool to gauge market direction over the weekend.
As one trader noted, 'You have some direction' when looking at perpetual markets, which can provide a better indication of where the market is heading. The emergence of perpetual contracts is also influencing how traders behave, with some using them to capture profits over the weekend.
While it is still uncertain whether perpetual contracts will reshape the traditional market, one thing is clear: the old routine of the 'weekend effect' is beginning to change, and traders are no longer limited by the constraints of a weekday-only market.