The commodities trading desks undergo a significant shift in focus by Friday afternoons, transitioning from profit-driven strategies to risk management. Traders must assess the potential risks they can tolerate over the weekend, when markets are closed, and adjust their positions accordingly. However, the rise of cryptocurrency markets has introduced a new dynamic, allowing traders to hedge their positions and manage risk over the weekend through perpetual futures contracts.
This development has significant implications for the traditional 'weekend effect' in short-dated West Texas Intermediate crude options, where implied volatility is typically depressed on Fridays. With perpetual contracts available, traders can now capture profits over the weekend if the market becomes chaotic, rather than simply waiting for the traditional market to reopen. While institutional traders have been slow to adapt to this new landscape, citing issues with infrastructure and liquidity, the growth of perpetual futures trading is likely to continue, potentially influencing traditional markets and rendering the traditional weekend trading habits obsolete.