By Friday afternoons, the atmosphere on commodity trading desks undergoes a significant shift. For the first four days of the week, traders focus on maximizing profits from their investments. However, as the weekend approaches, their attention turns to risk management, as they must tolerate potential market fluctuations until trading resumes on Sunday evening.
Any unforeseen event, such as a geopolitical crisis or unexpected market announcement, can have a profound impact on their positions, leaving them unable to respond until the markets reopen. 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, who 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, aptly put it, 'Risk, geopolitical or not, does not know what day of the week it is.' However, markets have traditionally been bound by weekday operating hours, with traders forced to wait for the traditional market to reopen before reacting to events. That was until the emergence of crypto exchanges, which have introduced a 24/7 trading venue for oil derivatives. 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 negligible, highlighting the growth of a continuous trading venue for oil derivatives. Researchers at Energy Aspects note that the dynamics of pricing short-dated West Texas Intermediate (WTI) crude options are set to change, thanks to the rapid growth of perpetual contracts on crypto exchanges. The implied volatility of WTI contracts, which had traditionally fallen on Fridays, has begun to narrow, as traders can now hedge their exposure over the weekend.
This development has significant implications for the 'weekend effect' in short-dated WTI options, where implied volatility is structurally depressed on Fridays. The availability of perpetual contracts has created an opportunity for traders to capture profits over the weekend, rather than simply sitting on their positions.
However, finding a counterparty to take the other side of the trade remains a challenge, particularly for large institutional traders. The lack of meaningful liquidity is a major reason why institutional traders are still hesitant to enter the market. The volume of perpetual contracts linked to traditional assets, such as commodities and stocks, has increased significantly over the past few months but remains relatively small from Wall Street's perspective.
Large institutions, such as banks, already have systems in place for traditional market hours and would need to adapt their infrastructure to accommodate 24/7 trading. The existing financial infrastructure, including clearing and settlement systems, is not yet equipped to handle weekend trading. As a result, perpetual contracts remain the domain of crypto-native firms, proprietary trading shops, and savvy retail traders. However, these instruments are starting to influence traditional markets, providing a tool for traders to gauge market direction over the weekend.
The emergence of perpetual futures is a significant development, potentially signaling a shift towards 24/7 trading in traditional markets. While volumes are still modest, and big-money institutions are cautious, there are signs that old habits are changing, and traders are beginning to adapt to a new reality where weekends are no longer a trading hiatus.