By Friday afternoon, 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 lunchtime on Friday, their attention turns to managing risk, as they must tolerate potential market fluctuations until Sunday evening when markets reopen. The weekend can be a prolonged period, with traders holding positions tied to highly active markets, and they are unable to adjust or rebalance their bets 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 forty-eight hours until the Sunday evening reopen.' This ritual is familiar to every commodities options trader, as they must assess whether they are comfortable holding their position over the weekend, given the inability to adjust or rebalance their bets during this time. As Terry Duffy, chairman and CEO of CME Group, noted, 'Risk, geopolitical or not, does not recognize the days of the week.' Nonetheless, markets have traditionally operated on a weekday schedule, and traders have had to plan for potential weekend and after-hours crises as part of their job.
Earlier this year, an unusual event occurred in the oil options market, disrupting this long-standing routine. As tensions escalated between Iran and Israel, traders rushed to speculate on prices, resulting in a sudden surge in volume over the weekend in March. Although commodity markets were closed, traders did not 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 insignificant. This development highlights the emergence of a 24/7 venue for oil derivatives trading, which is not available in traditional finance. According to Martin Lee, market insights lead at DWF Labs, 'We're roughly seeing 2-3x more volume on average on weekdays vs weekends for oil perps on Hyperliquid over the last 3 months.' Furthermore, Lee noted that weekend trading's share of overall volume has grown by approximately 25% since March, despite a decline in activity following the spike that accompanied the Iran conflict.
This shift may be quietly influencing another aspect of the oil market. Researchers at Energy Aspects, an energy and macro analytics firm, stated that the dynamics of pricing short-dated West Texas Intermediate (WTI) crude options are set to change due to the rapid growth of similar round-the-clock perpetuals on crypto exchanges. For years, the implied volatility of WTI contracts has decreased on Fridays, as traders were reluctant to pay for protection through options or derivatives that they could not actively manage while markets were closed. To avoid exposure over the weekend, many traders reduced their positions before Friday's close, creating what Energy Aspects describes as a persistent Friday discount in implied volatility.
This discount has begun to narrow, according to Energy Aspects. Analysts led by Tim Skirrow noted in a recent report that the availability of perpetual contracts allows traders to hedge options exposure over the weekend, which may lead them to hold or even purchase options they would have previously sold before Friday's close. 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 while the underlying asset prices fluctuate sharply. Energy Aspects estimates that if a continuous futures contract is available, it would create approximately 40% more hedging sessions over the life of a typical contract.
The emergence of perpetual futures has significant implications for traders, as it provides them with a tool to gauge how the market will trade when it opens if news breaks out during the weekend. Before perps, it was largely a guess how an asset would trade once the traditional market opened. However, with perps trading 24/7, traders now have a better idea of the direction of their bets after the weekend. Hein Tibosch, head of digital assets OTC and product at Flow Traders, stated 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 a similar 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 most significant impact of perps thus far is that they 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, with volumes still modest and big-money institutions 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.'