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 generating profits from their investments. However, by Friday lunchtime, their attention turns to assessing the level of risk they can tolerate until markets reopen on Sunday evening. The reason for this shift is that anything can happen while markets are closed, such as unexpected news, election results, or sudden changes in global events, leaving traders with no control over their positions until trading resumes.
According to Mustafa Al Niama, former head of digital assets at Goldman Sachs, 'From about lunchtime, the desk essentially stops thinking about making money and starts thinking about what they can live with for roughly 48 hours until the Sunday evening reopen.' This ritual is familiar to every commodities options trader, who by the end of the week, is more concerned with 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, geopolitical or not, does not know what day of the week it is.' However, markets have traditionally been bound by weekday hours, and planning for potential weekend and after-hours catastrophes has long been part of a trader's job. Earlier this year, an unusual event in the oil options market disrupted this long-standing routine. As tensions escalated between Iran and Israel, traders rushed to speculate on prices, resulting in a sudden spike in volume over the weekend in March.
Notably, this occurred when traditional commodity markets were closed, but traders didn't need to wait for the traditional market to reopen before reacting; instead, they turned to crypto exchanges 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 shift highlights the emergence of a 24/7 venue for oil derivatives trading, which barely existed a few years ago.
Researchers at Energy Aspects note that the growth of perpetual futures on crypto exchanges is set to change how traders price short-dated West Texas Intermediate (WTI) crude options. For years, implied volatility for WTI contracts has fallen on Fridays, as traders were reluctant to pay for protection through options or derivatives that they couldn't actively manage while markets were shut. However, with perpetual contracts available, traders can now hedge their exposure over the weekend, potentially leading to a reduction in the Friday discount in implied volatility. In theory, this could create an opportunity for traders to capture profits over the weekend if the market becomes chaotic, 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 availability of perpetual futures is also influencing how some traders behave, with the potential to become one of the first ideas moving from the crypto industry to traditional finance. While volumes are still modest, and big-money institutions are cautiously watching, there are signs that old habits are beginning to change for traders. With the possibility of continuous trading hours, some traders may no longer have to spend time waiting and can start making money either by trading or tracking these 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 emergence of perpetual futures may be quietly influencing another corner of the oil market, and their impact on traditional markets remains uncertain. Nevertheless, it seems that one assumption is less permanent than it once was: that Friday's closing bell marks the beginning of two days when traders simply have to wait.