The atmosphere on commodity trading desks undergoes a significant shift by Friday afternoon. For the majority of the week, traders focus on maximizing their profits. However, by Friday lunchtime, their primary concern becomes assessing the level of risk they can tolerate until markets reopen on Sunday evening. Any unexpected event, such as a geopolitical crisis, election outcome, or surprise announcement, can occur while markets are closed, leaving traders unable to respond until trading resumes.
According to Mustafa Al Niama, former head of digital assets at Goldman Sachs, 'From around lunchtime, the desk essentially stops focusing on generating profits and starts contemplating what they can endure for roughly 48 hours until the Sunday evening reopening.' This ritual is familiar to every commodities options trader. By the end of the week, the question is not about the direction of the commodity but rather whether they are comfortable maintaining their position if something unforeseen happens while markets are closed, as they are unable to adjust or rebalance their bets over the weekend. Terry Duffy, chairman and CEO of CME Group, noted, 'Risk, whether geopolitical or not, does not acknowledge the day of the week.' Nevertheless, markets have traditionally been bound by weekday hours.
For decades, traders have had to plan for potential weekend and after-hours crises as part of their job. Earlier this year, an unusual event in the oil options market disrupted this long-standing routine. As tensions escalated between Iran and Israel, and traders rushed to speculate on prices, oil-linked futures experienced a sudden surge in volume over the weekend in March.
The notable aspect was that this occurred when commodity markets were closed, but traders did not have to wait for the traditional market to reopen before reacting. Instead, they turned to crypto exchanges to trade derivatives contracts known as 'perpetual futures,' which operate around the clock. The total value of all 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, at least by Wall Street's standards, it is no longer insignificant. This highlights the emergence of a 24/7 venue for oil derivatives trading, distinct from traditional finance, which is offline. Martin Lee, market insights lead at DWF Labs, observed, 'We are seeing roughly 2-3 times more volume on average on weekdays compared to weekends for oil perps on Hyperliquid over the last three months.' Despite activity cooling after the spike that followed the Iran conflict, Lee noted that weekend trading's share of overall volume has grown by approximately 25% since March.
This shift may be quietly influencing another aspect of the oil market. Researchers at Energy Aspects, an energy and macro analytics firm, believe that the rapid growth of perpetuals on crypto exchanges will change how traders price short-dated West Texas Intermediate (WTI) crude options. For years, the implied volatility of WTI contracts decreased on Fridays, as traders were reluctant to pay for protection through options or derivatives that they could not actively manage while markets were shut.
To avoid exposure over the weekend, many traders reduced their positions before Friday's close, creating what Energy Aspects describes as a persistent Friday discount in implied volatility. That discount has begun to narrow, according to Energy Aspects. Analysts led by Tim Skirrow stated in a recent note, 'For the first time, traders can hedge options exposure through the weekend, when geopolitical risk has become disproportionately concentrated.' The availability of perpetual contracts may lead traders to hold or even buy options they previously would have sold before Friday's close. In theory, this could create an opportunity for traders that did not exist before: capturing profits over the weekend if the market becomes chaotic, rather than simply sitting on their positions while the underlying asset prices move sharply.
Energy Aspects estimates that if a continuous futures contract is available, it would create approximately 40% more hedging sessions over the life of a typical contract. While finding any edge to capture a few basis points of profit sounds like a trader's dream, for most traders, it is likely to remain theoretical until continuous trading becomes more widespread. Even traders who find the strategy plausible are cautious not to overstate its impact. A trader at a proprietary market-making firm active across both traditional and crypto markets said, 'Is volatility coming down because of that [availability of perps]?
I don't think so.' However, the trader agreed that the ability to hedge over the weekend is valuable for traders. The trader noted that, given the ability to hedge over the weekend, a trader may be willing to pay a higher price for volatility on a different venue than the CME. Why? Because now, 'You have more touch points for picking up and laying off risk over the weekend than you had before.
You had zero [places to hedge] before, and now you have more than zero.' The main issue is not that big banks cannot trade perps but that they do not see it as profitable enough to invest in, at least not yet. Lack of meaningful liquidity is a significant reason institutional traders are likely still staying away. The volume of perps linked to traditional assets such as commodities and stocks has increased over the past few months but still likely is not large enough for giant Wall Street trading firms to come in and profit. For example, in March and April, the average volume of crude oil perps accounted for about just 2% and 4%, respectively, of the primary futures contract equivalents traded on traditional exchanges, according to Binance Research data.
While those are massive numbers for crypto, they are still relatively small from Wall Street's perspective. The hardest challenge about trading is finding someone who wants to take the other side. In the absence of traditional liquidity providers, how are you going to get that bet on big enough such that you care about the result? Large institutions, such as banks, already have systems in place for the market's traditional operating hours.
Even if weekend trading has sufficient volume for them to jump in, they will need a different structure for it. DWF's Lee echoed this issue, 'Having the option to trade does not mean that people would automatically start doing so.
There needs to be a broad shift in operational capacity from institutions and corporations to be able to cater to that.' One of these structural issues might be how institutions operate (or don't operate) on weekends. Banks are closed on Saturdays and Sundays, so it would be hard to collect margin for perps trading mid-weekend. These large institutions would need the backing of clearing and settlement rails that actually move money, which is, for now, mostly on weekdays. Even when weekend trading is available, much of the financial infrastructure that these large institutions rely on still isn't.
Banks don't move collateral around the clock, clearing systems largely keep weekday hours, and firms can't simply summon additional capital on a Saturday afternoon. Put simply, the biggest challenge may not be keeping the markets open.
It's keeping the financial system underneath everything open as well. So, in the meantime, who is actually trading perps? For now, these instruments remain in the domain of crypto-native firms, proprietary trading shops, and savvy retail traders.
Predominantly now, it's the same typical retail, market makers, prop shops that are trading perps, said Al Niama, noting that they are probably using perps mostly for basis trading or carry trades, rather than hedging. Because it is a very lucrative delta-neutral type of trade. There is, however, another important role that perps play for traders that didn’t exist before. They give traders a tool to gauge how the market will trade when it opens if news breaks out during the weekend.
Before perps, it was mostly a guess of how an asset would trade once the traditional market opens. But now, because perps trade 24/7, traders at least have a better idea of the bets’ direction after the weekend. Hein Tibosch, head of digital assets OTC and product at Flow Traders, said perpetual markets have become another source of information before traditional markets reopen.
The perps... will be a pretty good indicator of where the market is heading. You have some direction.
The trader at the proprietary market-making firm described the same shift. It's not really a surprise anymore by Sunday's open, he said, noting that traders increasingly watch crypto markets throughout the weekend to gauge where traditional futures may begin trading once the CME opens. This might 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. Perhaps the biggest impact of perps thus far is that the instrument might be influencing how some traders behave.
For the crypto industry, it actually is a big deal because for the longest time, we as an industry have always been the student. However, perps might become one of the first ideas moving in the opposite direction, where traditional finance is potentially influenced by crypto innovations.
Whether perps can actually reshape the traditional market remains uncertain. Volumes (at least by TradFi measures) are still modest, and big-money institutions are still cautiously watching. Meanwhile, CME's proposed 24/7 futures contract trading remains uncertain. But there are signs that on Friday afternoons, old habits are already beginning to change for traders.
They will still spend the end of the week worrying about the weekend — the difference is that if there are continuous trading hours, some of them may no longer have to spend time waiting. Now, they can start making money either by trading or tracking these contracts. 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.
So if you can have alpha, bring it on. And it seems, at least in the future, one assumption appears less permanent than it once did: that Friday's closing bell marks the beginning of two days when traders simply have to wait.
I think that markets will be 24/7 down the road. All markets, said CME's Duffy. Perhaps it's time for trading desks to start preparing to properly staff for an around-the-clock market, and forget the old routine of the weekend effect.