As the week draws to a close on Friday afternoons, the atmosphere on commodity trading desks undergoes a significant shift. For the first four days of the week, traders are focused on turning a profit from their investments. However, by Friday lunchtime, their attention turns to managing risk, as they must tolerate uncertainty until markets reopen on Sunday evening. The 48-hour period when traditional markets are closed can be particularly challenging for traders holding positions tied to actively traded markets, as they are unable to adjust or rebalance their bets during this time.
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 whether they are comfortable holding their position over the weekend, given the inability to adjust or rebalance their bets during this period. As Terry Duffy, chairman and CEO of CME Group, notes, 'Risk, geopolitical or not, does not know what day of the week it is.' However, traditional markets have historically been bound by weekday operating hours.
A recent development in the oil options market has disrupted this long-standing routine. In March, as tensions escalated between Iran and Israel, traders flocked to crypto exchanges to trade derivatives contracts known as '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 trading volume is still smaller than weekday volume, it is no longer negligible.
This shift highlights the emergence of a 24/7 venue for oil derivatives trading, which is not yet available in traditional finance. 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 growth of perpetual futures 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 reduction in the 'weekend effect' in short-dated WTI options.
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 the availability of continuous futures contracts could create approximately 40% more hedging sessions over the life of a typical contract. The emergence of perpetual futures has also given traders a tool to gauge how markets will trade when they reopen after the weekend, providing a better indication of the direction of bets. While the impact of perpetual futures on traditional markets remains uncertain, there are signs that old habits are beginning to change for traders.
With the potential for continuous trading hours, some traders may no longer have to spend time waiting over the weekend, but can instead focus on making money or tracking contracts. As Flow Traders' Hein Tibosch notes, '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.' The future of trading may indeed be 24/7, and it is time for trading desks to prepare for an around-the-clock market, leaving behind the traditional 'weekend effect.'