As the week draws to a close, the atmosphere on commodity trading desks undergoes a significant shift. For the first four days, traders are focused on maximizing profits from their investments. However, by Friday lunchtime, their attention turns to risk management, as they must tolerate potential fluctuations until markets reopen on Sunday evening. The possibility of unexpected events, such as geopolitical tensions or surprise announcements, can lead to significant market movements, leaving traders unable to respond 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 their comfort level with their position if something happens while markets are closed. Terry Duffy, chairman and CEO of CME Group, notes that 'Risk, geopolitical or not, does not know what day of the week it is.' Despite this, markets have traditionally observed a weekend pause.
Earlier this year, an unusual event in the oil options market disrupted this routine. As tensions escalated between Iran and Israel, oil-linked futures experienced a sudden surge in volume over the weekend in March.
Traders flocked to crypto exchanges to trade '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 oil market. Researchers at Energy Aspects note that the growth of perpetual futures on crypto exchanges is set to alter how traders price short-dated West Texas Intermediate crude options. The implied volatility of WTI contracts has historically fallen on Fridays, as traders were reluctant to pay for protection through options or derivatives that they couldn't actively manage while markets were shut.
However, with the availability of perpetual contracts, traders can now hedge their exposure over the weekend. This development has implications for the 'weekend effect' in short-dated WTI options, where implied volatility is structurally depressed on Fridays.
If traders can hedge oil exposure through perpetual futures over the weekend, they may be willing to hold or even buy options they previously would have sold before Friday's close. In theory, this could create an opportunity for traders to capture profits over the weekend if the market becomes chaotic.
Energy Aspects estimates that if a continuous futures contract is available, it would create roughly 40% more hedging sessions over the life of a typical contract. The availability of perpetual futures is also influencing the behavior of traders.
Hein Tibosch, head of digital assets OTC and product at Flow Traders, notes that perpetual markets have become another source of information before traditional markets reopen. The trader at the proprietary market-making firm describes a similar shift, where 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. The biggest impact of perps thus far is that the instrument might be influencing how some traders behave. Whether perps can actually reshape the traditional market remains uncertain, with volumes still modest and big-money institutions cautiously watching.
However, there are signs that old habits are already beginning to change for traders, who 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.