As the week draws to a close, commodity trading desks undergo a significant shift in mindset. From Monday to Thursday, traders focus on maximizing profits, but by Friday lunchtime, their attention turns to risk management and mitigating potential losses over the weekend. This is because, in traditional markets, traders are unable to adjust their positions or respond to market-moving events during this period.
However, the rise of crypto markets has introduced a new dynamic, with the availability of perpetual futures contracts allowing traders to hedge their exposure and respond to market developments 24/7. This has significant implications for the 'weekend effect' in short-dated WTI options, where implied volatility is typically depressed on Fridays as traders reduce their positions ahead of the market closure. Researchers at Energy Aspects suggest that the growth of perpetual futures on crypto exchanges is set to change this dynamic, enabling traders to hedge their exposure over the weekend and potentially leading to increased demand for options.
While institutional traders have been slow to adopt perpetual futures due to concerns over liquidity and infrastructure, the potential benefits of 24/7 trading are clear. As one trader noted, 'having more touch points for picking up and laying off risk over the weekend than you had before' is a significant advantage. The emergence of perpetual futures is also providing traders with a new tool to gauge market sentiment ahead of the traditional market open.
As Flow Traders' head of digital assets OTC and product, Hein Tibosch, observed, 'the perps... will be a pretty good indicator of where the market is heading.' While the impact of perpetual futures on traditional markets remains uncertain, it is clear that they are influencing trader behavior and potentially reshaping the traditional market. As CME's Terry Duffy noted, 'I think that markets will be 24/7 down the road. All markets.'