By Friday afternoons, the atmosphere on commodity trading desks undergoes a significant shift. For the first four days of the week, traders focus on making profitable bets.
However, by Friday lunchtime, their attention turns to managing risk, as they must tolerate potential market fluctuations until Sunday evening when markets reopen. The weekend can be a prolonged period, and traders holding positions tied to actively traded markets must wait until trading resumes. According to Mustafa Al Niama, former head of digital assets at Goldman Sachs, 'From about lunchtime, the desk 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 with their position over the weekend, as they cannot adjust or rebalance their bets during this time. Terry Duffy, chairman and CEO of CME Group, notes that 'Risk, geopolitical or not, does not know what day of the week it is,' highlighting the need for traders to be prepared for potential market changes at any time.
In recent years, the oil options market has experienced a significant shift, with traders flocking to crypto exchanges over weekends to trade perpetual futures contracts. The total value of active contracts on the decentralized exchange Hyperliquid reached a record $1.2 billion on a Sunday in March, demonstrating the growing demand for 24/7 trading venues. While weekend volume is still smaller than weekday volume, it is no longer negligible, and the share of weekend trading has grown by approximately 25% since March. Researchers at Energy Aspects believe that the dynamics of short-dated West Texas Intermediate crude options are set to change due to the rapid growth of perpetual futures on crypto exchanges.
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 could not actively manage over the weekend. However, with the emergence 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 development could create new opportunities for traders to capture profits over the weekend, rather than simply sitting on their positions.
Energy Aspects estimates that if a continuous futures contract is available, it would create approximately 40% more hedging sessions over the life of a typical contract. While finding an edge to capture a few basis points of profit may seem like a trader's dream, it is likely to remain theoretical until continuous trading becomes more widespread.
Traders are cautious not to overstate the impact of perpetual futures, but they acknowledge the value of being able to hedge bets during the weekend. The ability to trade perpetual futures over the weekend has also given traders a tool to gauge how the market will trade when it opens after the weekend, providing a better indication of the direction of bets. This shift may be the first sign that perpetual futures are starting to influence traditional markets, not as a replacement for the CME, but as another source of price discovery while the rest of the market is closed.
The biggest challenge in adopting 24/7 trading may not be keeping the markets open but rather keeping the underlying financial system operational. Large institutions, such as banks, require a different structure for weekend trading, and the lack of meaningful liquidity is a significant reason institutional traders are still hesitant to participate. The volume of perpetual futures linked to traditional assets has increased, but it remains relatively small from a Wall Street perspective. While the impact of perpetual futures on traditional markets is still uncertain, there are signs that old habits are changing, and traders are beginning to adapt to the new reality of continuous trading.