By Friday afternoons, commodity trading desks undergo a significant shift in focus. For the first four days of the week, traders concentrate on maximizing profits from their bets. However, as the weekend approaches, their attention turns to risk management, as they must tolerate potential market fluctuations until Sunday evening.
Given that news can break at any time, including weekends, traders must carefully assess their positions to mitigate potential losses. 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 mindset is common among commodities options traders, who must weigh the risks of holding positions over the weekend. As Terry Duffy, chairman and CEO of CME Group, notes, 'Risk, geopolitical or not, does not know what day of the week it is.' Yet, markets have traditionally observed a weekday schedule, with traders planning for potential weekend and after-hours events as part of their job. Recently, the oil options market experienced an unusual event, which disrupted this long-standing routine.
As tensions escalated between Iran and Israel, oil-linked futures saw a sudden spike in volume over the weekend in March. Traders flocked to crypto exchanges to trade derivatives contracts called 'perpetual futures,' which operate around the clock.
The total value of all active contracts on the decentralized exchange Hyperliquid hit 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 development highlights the emergence of a 24/7 venue for oil derivatives trading, which is changing the dynamics of the oil market.
Researchers at Energy Aspects note that the growth of perpetual futures on crypto exchanges is set to alter the way traders price short-dated West Texas Intermediate (WTI) crude options. For years, implied volatility for WTI contracts fell 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 the availability of perpetual contracts, traders can now hedge their exposure over the weekend, which may lead to a reduction in the 'weekend effect' in short-dated WTI options. In theory, this could create an opportunity for traders to capture profits over the weekend if the market becomes chaotic. 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 rise of perpetual futures is also influencing the behavior of traders. Hein Tibosch, head of digital assets OTC and product at Flow Traders, notes that perpetual markets have become another source of information before traditional markets reopen. 'The perps...
will be a pretty good indicator of where the market is heading,' he said. The trader at the proprietary market-making firm described the same shift, noting that traders increasingly watch crypto markets throughout the weekend to gauge where traditional futures may begin trading once the CME opens.
This might be the first signal that perpetual futures are starting to influence traditional markets — not as a replacement for CME, but as another source of price discovery while the rest of the market sleeps. Perhaps the biggest impact of perps thus far is that the instrument might be influencing how some traders behave. 'For the crypto industry, it actually is a big deal because for the longest time, we as an industry have always been the student,' said Al Niama. However, perps might become one of the first ideas moving in the opposite direction, where traditional finance is potentially influenced by crypto innovations.
Whether perps can actually reshape the traditional market remains uncertain. Volumes are still modest, and big-money institutions are still cautiously watching. Meanwhile, CME's proposed 24/7 futures contract trading remains uncertain.
But there are signs that on Friday afternoons, old habits are already beginning to change for traders. They will still spend the end of the week worrying about the weekend — the difference is that if there are continuous trading hours, some of them may no longer have to spend time waiting. Now, they can start making money either by trading or tracking these contracts. '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,' said Flow Traders' Tibosch.
'So if you can have alpha, bring it on,' he added. And it seems, at least in the future, one assumption appears less permanent than it once did: that Friday's closing bell marks the beginning of two days when traders simply have to wait. 'I think that markets will be 24/7 down the road.
All markets,' said CME's Duffy. Perhaps it's time for trading desks to start preparing to properly staff for an around-the-clock market, and forget the old routine of the 'weekend effect.'