By Friday afternoons, commodity trading desks undergo a significant shift in focus. Throughout the first four days of the week, traders are primarily concerned with generating profits from their bets.
However, as the weekend approaches, their attention turns to risk management, as they must tolerate potential market fluctuations until trading resumes on Sunday evening. The possibility of unexpected events, such as geopolitical conflicts or surprise announcements, can lead to significant market movements, leaving traders with limited options until the markets reopen.
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 their positions over the weekend, as they are unable to 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. The traditional market's limited operating hours have long been a challenge for traders, who must plan ahead for potential weekend and after-hours catastrophes. However, the emergence of cryptocurrency markets has introduced a new dynamic, allowing traders to react to market changes in real-time, regardless of the day of the week.
In March, the oil options market experienced a sudden spike in volume over the weekend, as traders flocked to crypto exchanges to trade derivatives contracts called 'perpetual futures,' which run 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 insignificant, and the growth of perpetual futures on crypto exchanges is changing the dynamics of the oil market. Researchers at Energy Aspects note that the implied volatility of short-dated West Texas Intermediate (WTI) crude options is set to change, thanks to the rapid growth of perpetuals on crypto exchanges.
The traditional 'weekend effect' in short-dated WTI options, where implied volatility is structurally depressed on Fridays, is beginning to narrow, as traders can now hedge their exposure through perpetual futures over the weekend. This development has significant implications for traders, who may be willing to hold or even buy options they previously would have sold before Friday's close, in order to capture profits over the weekend.
The availability of perpetual contracts is creating new opportunities for traders, who can now hedge their weekend bets and reduce the Friday selling pressure. However, the lack of meaningful liquidity and the need for institutions to adapt their infrastructure to accommodate 24/7 trading are major challenges that must be addressed. Despite these challenges, the growth of perpetual futures on crypto exchanges is likely to continue, and may eventually influence traditional markets, as traders become more comfortable with the idea of trading around the clock.
As CME's Duffy notes, 'I think that markets will be 24/7 down the road. All markets.' The emergence of cryptocurrency markets is redefining Wall Street's weekend trading habits, and it is likely that the traditional market will eventually follow suit, as traders and institutions adapt to the new reality of around-the-clock trading.