By Friday afternoons, the atmosphere on commodity trading desks undergoes a significant shift. For the first four days of the week, traders are focused on maximizing their profits. However, as the week draws to a close, their attention turns to managing risk and determining how much exposure they can tolerate until markets reopen on Sunday evening. The weekend can be a prolonged period of uncertainty, with unexpected events such as geopolitical developments or market-moving announcements capable of significantly impacting trading positions.
According to Mustafa Al Niama, former head of digital assets at Goldman Sachs, 'From around lunchtime on Friday, the desk essentially stops concentrating on generating profits and starts thinking about what they can live with for roughly 48 hours until the Sunday evening reopen.' This ritual is well-known to every commodities options trader, who must assess whether they are comfortable holding their position over the weekend, given their inability to adjust or rebalance their bets during this time. As Terry Duffy, chairman and CEO of CME Group, aptly puts it, 'Risk, whether geopolitical or not, does not recognize weekends.' However, traditional markets have historically been closed on weekends, leaving traders to prepare for potential catastrophes during this period. Earlier this year, an unusual event occurred in the oil options market, disrupting this long-standing routine. As tensions escalated between Iran and Israel, traders flocked to crypto exchanges over the weekend 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, it is no longer negligible. This development highlights the emergence of a 24/7 venue for oil derivatives trading, which is redefining the traditional finance landscape. Researchers at Energy Aspects note that the dynamics of pricing short-dated West Texas Intermediate (WTI) crude options are set to change due to the rapid growth of perpetuals on crypto exchanges.
For years, implied volatility for WTI contracts has fallen on Fridays, as traders have been reluctant to pay for protection through options or derivatives that they cannot actively manage while markets are shut. However, with the availability of perpetual contracts, traders can now hedge their exposure over the weekend, potentially leading to a change in their behavior.
In theory, this could create new opportunities for traders to capture profits over the weekend, rather than simply holding their positions. 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 emergence of perpetual futures is also influencing the traditional market, with some traders using them to gauge how the market will trade when it opens after the weekend. According to Hein Tibosch, head of digital assets OTC and product at Flow Traders, perpetual markets have become another source of information before traditional markets reopen.
The trader at the proprietary market-making firm described the same shift, 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 sign 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. As Al Niama noted, 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, with volumes still modest and big-money institutions cautiously watching. However, 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, but with 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.