By Friday afternoons, commodity trading desks undergo a significant shift in focus. For the first four days of the week, traders concentrate on making profitable bets.
However, by lunchtime on Fridays, their attention turns to managing risk tolerance until markets reopen on Sunday evenings. This is because unexpected events, such as geopolitical tensions or market-moving announcements, can occur while markets are closed, leaving traders unable to adjust their positions.
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 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, notes, 'risk, geopolitical or not, does not know what day of the week it is.' However, markets have traditionally been bound by weekday operating hours, requiring traders to plan ahead for potential weekend and after-hours catastrophes. Earlier this year, an unusual event in the oil options market disrupted this routine. As tensions between Iran and Israel escalated, traders flocked to crypto exchanges over the weekend to trade derivatives contracts called 'perpetual futures,' which operate around the clock.
The total value of 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. This development has significant implications for the oil market, particularly in the pricing of short-dated West Texas Intermediate (WTI) crude options.
Researchers at Energy Aspects note that the implied volatility of WTI contracts, which had traditionally fallen on Fridays, has begun to narrow. This is because traders can now hedge their options exposure through perpetual futures over the weekend, reducing the need to liquidate positions before Friday's close. In theory, this could create new opportunities for traders to capture profits over the weekend, rather than simply holding their positions.
Energy Aspects estimates that the availability of continuous futures contracts could create roughly 40% more hedging sessions over the life of a typical contract. However, finding an edge to capture a few basis points of profit remains a challenge, and traders are cautious not to overstate the impact of perpetual futures.
One trader notes that 'is volatility coming down because of that [availability of perps]? I don't think so.' Nevertheless, the ability to hedge over the weekend is valuable for traders, who may be willing to pay a higher price for volatility on a different venue.
The growth of perpetual futures trading has also highlighted the limitations of traditional financial infrastructure, which is not equipped to handle 24/7 trading. Large institutions, such as banks, require a different structure to support weekend trading, and the lack of meaningful liquidity is a significant barrier to entry. Despite these challenges, perpetual futures are likely to continue influencing traditional markets, providing an additional source of price discovery and potentially reshaping the way traders behave. As CME's Duffy notes, 'I think that markets will be 24/7 down the road.
All markets.'