By Friday afternoons, the atmosphere on commodity trading desks undergoes a significant shift. For the first four days of the week, traders are focused on making profitable trades. However, by Friday lunchtime, their attention turns to risk management, as they assess how much exposure they can tolerate until markets reopen on Sunday evening. The weekend can be a prolonged period of uncertainty, with unforeseen events such as geopolitical conflicts, election outcomes, or unexpected announcements potentially impacting market dynamics.
As a result, traders must carefully evaluate their positions and adjust their strategies accordingly. 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 weigh the risks and rewards of holding a position over the weekend, when markets are closed, and adjustments cannot be made.
However, the rise of crypto exchanges has introduced a new dynamic, enabling traders to react to market developments in real-time, regardless of the day of the week. The recent surge in oil-linked futures trading on crypto exchanges over the weekend has highlighted the potential for 24/7 trading, which could revolutionize the way traders approach the weekend.
As Terry Duffy, chairman and CEO of CME Group, noted, 'Risk, geopolitical or not, does not know what day of the week it is.' The growth of perpetual futures contracts on crypto exchanges has created new opportunities for traders to hedge their positions and manage risk over the weekend. According to researchers at Energy Aspects, the dynamics of short-dated West Texas Intermediate (WTI) crude options are likely to change, thanks to the rapid growth of perpetuals on crypto exchanges. The traditional 'weekend effect' in short-dated WTI options, where implied volatility is structurally depressed on Fridays, may be mitigated by the availability of perpetual contracts, which enable traders to hedge their exposure over the weekend.
While institutional traders have been slow to adopt perpetual futures, due to concerns about liquidity and infrastructure, the potential benefits of 24/7 trading are clear. As Gracy Chen, CEO of Bitget, noted, 'The main issue is not really that they can't, it's probably more like they don't see it as profitable enough for them to invest… at least not yet.' However, as the volume of perpetual futures contracts continues to grow, it is likely that more institutional traders will begin to take notice.
The emergence of perpetual futures has also created new opportunities for traders to gauge market sentiment over the weekend, using crypto markets as a barometer for traditional market openings. As Hein Tibosch, head of digital assets OTC and product at Flow Traders, noted, 'The perps... will be a pretty good indicator of where the market is heading.' While the impact of perpetual futures on traditional markets remains uncertain, it is clear that the instrument is influencing the way traders behave, particularly on Friday afternoons. As Al Niama noted, 'For the crypto industry, it actually is a big deal because for the longest time, we as an industry have always been the student.' The rise of perpetual futures may mark a significant shift in the relationship between traditional finance and crypto, with the latter potentially influencing the former.
As CME's Duffy noted, 'I think that markets will be 24/7 down the road. All markets.'