By Friday afternoons, commodity trading desks undergo a shift in focus. For the first four days of the week, traders concentrate on maximizing their profits.
However, by Friday lunchtime, their attention turns to managing risk tolerance until markets reopen on Sunday evenings. The possibility of unexpected events, such as geopolitical conflicts or market-moving announcements, necessitates careful risk assessment. 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 familiar to every commodities options trader, who must evaluate their position's sustainability over the weekend when markets are closed.
Terry Duffy, chairman and CEO of CME Group, notes that 'Risk, geopolitical or not, does not know what day of the week it is.' Despite this, markets have traditionally operated on a weekday schedule. Recently, an unusual event in the oil options market disrupted this routine.
As tensions escalated between Iran and Israel, oil-linked futures experienced a sudden surge in volume over a weekend in March. Traders turned to crypto exchanges to trade perpetual futures contracts, which operate around the clock. The total value of active contracts on the decentralized exchange Hyperliquid reached a record $1.2 billion on a Sunday when traditional commodity markets were closed. While weekend volume is still smaller than weekday volume, it is no longer negligible.
This shift highlights the emergence of a 24/7 venue for oil derivatives trading, which is distinct from traditional finance. Researchers at Energy Aspects note that the growth of perpetual futures on crypto exchanges is likely to change how traders price short-dated West Texas Intermediate crude options. The implied volatility of WTI contracts has historically decreased on Fridays, as traders were reluctant to hold positions they couldn't manage over the weekend. However, with the availability of perpetual contracts, traders can now hedge their exposure during this period.
Energy Aspects analysts argue that this development may lead traders to hold or buy options they would have previously sold before Friday's close, potentially creating new opportunities for profit. The availability of perpetual futures contracts allows traders to capture profits over the weekend if the market becomes chaotic, rather than simply sitting on their positions. While finding an edge to capture a few basis points of profit may seem appealing, most traders consider this strategy theoretical until continuous trading becomes more widespread.
One trader notes that the ability to hedge over the weekend is valuable, but the impact on volatility is uncertain. The trader agrees that having more opportunities to manage risk over the weekend is beneficial, but the lack of meaningful liquidity is a significant challenge for institutional traders. Large institutions require sufficient volume to profit from trading perpetual futures, which is currently not available. The main issue is not the inability to trade, but rather the lack of profitability, according to Gracy Chen, CEO of Bitget.
Institutional traders are also hindered by structural issues, such as the need for a different infrastructure to support 24/7 trading. BitGet's Chen notes that large institutions would need to adapt their systems to accommodate weekend trading, which is a significant challenge. DWF's Martin Lee echoes this concern, stating that having the option to trade does not necessarily mean that people will automatically start doing so. There needs to be a broad shift in operational capacity from institutions and corporations to cater to 24/7 trading.
One of the structural issues is the limitation of financial infrastructure, such as banking and clearing systems, which are not designed to operate on weekends. CME's Duffy notes that the biggest challenge is not keeping the markets open, but rather keeping the financial system underneath everything open as well. Currently, perpetual futures remain in the domain of crypto-native firms, proprietary trading shops, and savvy retail traders. These instruments are primarily used for basis trading or carry trades, rather than hedging.
However, perpetual futures also provide traders with a tool to gauge how the market will trade when it opens after the weekend, giving them a better idea of the bets' direction. This shift may be the first signal that perpetual futures are starting to influence traditional markets, not as a replacement, but as another source of price discovery.
The emergence of perpetual futures might be one of the first ideas moving from the crypto industry to traditional finance, potentially influencing how traders behave. While volumes are still modest, and big-money institutions are cautiously watching, there are signs that old habits are changing for traders.
With the possibility of continuous trading hours, some traders may no longer have to spend time waiting and can start making money by trading or tracking these contracts.