The traditional Wall Street trading week used to end on Friday afternoons, with traders spending the weekend waiting for markets to reopen on Sunday evening. However, with the emergence of crypto markets, this is no longer the case. Traders can now trade derivatives contracts called 'perpetual futures' on crypto exchanges, which run around the clock. This has created a 24/7 venue for oil derivatives trading, allowing traders to hedge their bets during the weekend.
Researchers at Energy Aspects note that the dynamics of how traders price short-dated West Texas Intermediate crude options are set to change, thanks to the rapid growth of perpetuals on crypto exchanges. The availability of perpetual contracts has begun to narrow the Friday discount in implied volatility, as traders can now hedge their exposure over the weekend.
While institutional traders are still cautious about trading perpetuals due to lack of liquidity, the volume of perps linked to traditional assets has increased significantly over the past few months. The rise of perpetual futures is also influencing traditional markets, with traders using them as a tool to gauge how the market will trade when it opens after the weekend. As the crypto industry continues to evolve, it is likely that perpetual futures will play an increasingly important role in shaping the traditional market.