The mood on commodity trading desks shifts by Friday afternoon, as traders start thinking about the risks they can tolerate until markets reopen on Sunday evening. Anything can happen while markets are closed, and traders can't adjust their bets until trading resumes.
However, the rise of perpetual futures contracts on crypto exchanges has changed this dynamic. Traders can now hedge their exposure over the weekend, and this development has implications for the 'weekend effect' in short-dated WTI options. The availability of perpetual contracts allows traders to capture profits over the weekend if the market becomes chaotic, rather than just sitting on their positions.
While finding an edge to capture a few basis points of profit sounds like any trader's dream, for most traders, it's still likely to remain theoretical until continuous trading becomes more widespread. The biggest challenge may not be keeping the markets open, but keeping the financial system underneath everything open as well.
For now, perpetual futures remain in the domain of crypto-native firms, proprietary trading shops, and savvy retail traders. However, they give traders a tool to gauge how the market will trade when it opens if news breaks out during the weekend.
Perpetual markets have become another source of information before traditional markets reopen, and traders are starting to watch crypto markets throughout the weekend to gauge where traditional futures may begin trading once the CME opens.