The traditional Friday afternoon mindset on commodity trading desks is undergoing a significant shift. For the first four days of the week, traders are focused on profiting from their bets, but by lunch on Friday, their attention turns to managing risk until markets reopen on Sunday evening. This is because anything can happen over the weekend, from geopolitical events to unexpected announcements, and traders are unable to adjust their positions until trading resumes.
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 well-known among commodities options traders, who must consider whether they are comfortable holding their positions over the weekend, as they cannot adjust or rebalance their bets during this time. However, the rise of crypto markets has introduced a new dynamic, with traders now able to trade derivatives contracts called 'perpetual futures' around the clock. This has led to a significant increase in weekend trading volume, with the total value of active contracts on the decentralized exchange Hyperliquid reaching a record $1.2 billion on a Sunday in March. While weekend volume is still smaller than on weekdays, it is no longer negligible, and the growth of perpetual futures on crypto exchanges is changing the way traders approach the weekend.
Researchers at Energy Aspects believe that the dynamics of short-dated West Texas Intermediate crude options are set to change due to the rapid growth of perpetuals on crypto exchanges. The implied volatility of WTI contracts, which has historically fallen on Fridays, is beginning 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 is also creating new opportunities for traders, who can capture profits over the weekend if the market becomes chaotic. However, finding a meaningful edge to capture these profits remains a challenge, and the lack of liquidity is a major reason institutional traders are still hesitant to enter the market. The volume of perps linked to traditional assets is increasing, but it is still relatively small compared to traditional exchanges.
Despite these challenges, the rise of perpetual futures is influencing the way traders behave, with some using perps to gauge how the market will trade when it opens after the weekend. This is providing a new source of information for traders, who can now better anticipate the direction of the market. The impact of perps on traditional markets remains uncertain, but there are signs that old habits are changing, and the assumption that Friday's closing bell marks the beginning of two days of waiting may no longer be valid.