The mood on commodity trading desks undergoes a significant shift by Friday afternoon. For the majority of the week, traders focus on generating profits from their investments. However, by Friday lunchtime, their attention turns to managing risk tolerance until markets reopen on Sunday evening.
The possibility of unexpected events such as wars, election results, or surprise announcements can lead to significant market fluctuations over the weekend, leaving traders unable to respond until trading resumes. According to Mustafa Al Niama, the former head of digital assets of the Americas at Goldman Sachs and current head of capital markets at Mysten Labs, '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 by the end of the week, is more concerned with whether they are comfortable holding their position over the weekend than the direction of the commodity. Terry Duffy, chairman and CEO of CME Group, notes that 'Risk, geopolitical or not, does not know what day of the week it is.' However, markets have traditionally been bound by weekday operating hours. A notable exception occurred earlier this year in the oil options market, where tensions between Iran and Israel led to a surge in trading volume over a weekend in March.
Traders turned to crypto exchanges to trade 'perpetual futures,' which are contracts that run 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 weekday volume by Wall Street standards, it is no longer insignificant. This shift highlights the emergence of a 24/7 venue for oil derivatives trading, which is not available in traditional finance.
Researchers at Energy Aspects note that the dynamics of pricing short-dated West Texas Intermediate crude options are changing due to the growth of perpetual futures on crypto exchanges. For years, implied volatility for WTI contracts has decreased on Fridays as traders reduced their positions to avoid exposure over the weekend. However, with the availability of perpetual contracts, traders can now hedge their exposure over the weekend, potentially leading to an increase in implied volatility. Energy Aspects estimates that if a continuous futures contract is available, it would create roughly 40% more hedging sessions over the life of a typical contract.
The availability of perpetual futures is also creating new opportunities for traders to capture profits over the weekend if the market becomes chaotic. While finding an edge to capture a few basis points of profit may seem like a trader's dream, most traders are cautious not to overstate its impact. One trader notes that the ability to hedge over the weekend is valuable, but it is still uncertain whether it will significantly influence traditional markets. The growth of perpetual futures trading is also being driven by the increasing volume of perps linked to traditional assets such as commodities and stocks.
However, the volume is still relatively small compared to traditional markets, and institutional traders are likely staying away due to lack of meaningful liquidity. Large institutions, such as banks, already have systems in place for traditional market hours and would need a different structure for weekend trading. Even if weekend trading has sufficient volume, they will need the backing of clearing and settlement rails that actually move money, which is currently mostly available on weekdays. The biggest challenge may not be keeping the markets open, but keeping the financial system underneath everything open as well.
For now, perpetual futures remain in the domain of crypto-native firms, proprietary trading shops, and savvy retail traders. However, they are giving traders a tool to gauge how the market will trade when it opens if news breaks out during the weekend.
Perpetual markets have become another source of information before traditional markets reopen, providing traders with a better idea of the direction of bets after the weekend. The emergence of perpetual futures might be influencing how some traders behave, and it could be one of the first ideas moving from crypto to traditional finance. Whether perpetual futures can reshape the traditional market remains uncertain, but there are signs that old habits are already beginning to change for traders.