By Friday afternoons, commodity trading desks undergo a significant shift in focus. For the first four days of the week, traders concentrate on making profitable bets.
However, by Friday lunchtime, their attention turns to managing risk tolerance until markets reopen on Sunday evening. The possibility of unexpected events, such as geopolitical news or market-moving announcements, can significantly impact trading positions over the weekend. 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 well-known among commodities options traders, who must assess their comfort level with holding positions over the weekend without being able to adjust or rebalance their bets.
Terry Duffy, chairman and CEO of CME Group, notes that 'Risk, geopolitical or not, does not know what day of the week it is.' However, markets have traditionally been closed on weekends, forcing traders to plan ahead for potential weekend catastrophes. Recently, the oil options market experienced an unusual spike in volume over a weekend in March, with traders flocking to crypto exchanges to trade perpetual futures contracts. 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.
The growth of perpetual futures on crypto exchanges is changing the dynamics of short-dated West Texas Intermediate crude options, with traders now able to hedge their exposure over the weekend. Researchers at Energy Aspects note that the implied volatility of WTI contracts has begun to narrow, as traders can now manage their risk more effectively. The availability of perpetual contracts is creating new opportunities for traders to capture profits over the weekend, rather than simply holding positions. However, finding a trading edge to capture a few basis points of profit remains a challenge, and traders are cautious not to overstate the impact of perpetual futures.
One trader notes that 'Is volatility coming down because of that [availability of perps]? I don't think so.' Nevertheless, the ability to hedge bets during the weekend is valuable for traders, who may be willing to pay a higher price for volatility on a different venue.
The main issue preventing institutional traders from participating in perpetual futures is the lack of meaningful liquidity. The volume of perps linked to traditional assets is still relatively small compared to traditional exchanges.
Additionally, large institutions face structural issues, such as the need for 24/7 infrastructure and the ability to collect margin and move collateral over the weekend. As a result, perpetual futures remain the domain of crypto-native firms, proprietary trading shops, and savvy retail traders. However, perps are starting to influence traditional markets, providing a tool for traders to gauge how the market will trade when it opens after the weekend.
The shift towards perpetual futures may ultimately lead to a 24/7 market, where traders can make money or track contracts continuously. As CME's Duffy notes, 'I think that markets will be 24/7 down the road. All markets.'