By Friday afternoons, commodity trading desks undergo a significant shift in mindset. For the first four days of the week, traders focus on profiting from their bets, but as the weekend approaches, their attention turns to risk management. With markets closed, anything can happen - unexpected news, geopolitical events, or surprise announcements - leaving traders with no control over their positions until Sunday evening.
According to Mustafa Al Niama, former head of digital assets at Goldman Sachs, 'From about lunchtime, the desk 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 their comfort level with their position over the weekend, unable to adjust or rebalance their bets during this time. However, a recent development has disrupted this routine. In March, as tensions escalated between Iran and Israel, oil-linked futures saw a sudden spike in volume over the weekend, with traders flocking to crypto exchanges to trade perpetual futures contracts. The total value of active contracts on the decentralized exchange Hyperliquid hit 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 shift may be quietly influencing another corner of the oil market, with researchers at Energy Aspects suggesting that the dynamics of short-dated West Texas Intermediate crude options are set to change due to the growth of perpetuals on crypto exchanges. For years, implied volatility for WTI contracts fell on Fridays, as traders were reluctant to pay for protection they couldn't manage over the weekend. However, with perpetual contracts available, traders can now hedge their exposure, potentially leading to a narrowing of the Friday discount in implied volatility.
In theory, this could create an opportunity for traders to capture profits over the weekend if the market becomes chaotic. Energy Aspects estimates that continuous futures contracts could create roughly 40% more hedging sessions over the life of a typical contract. While finding an edge to capture a few basis points of profit sounds appealing, most traders consider this strategy theoretical until continuous trading becomes more widespread.
The ability to hedge bets during the weekend is valuable, but traders are cautious not to overstate its impact. One trader noted that having more touchpoints for picking up and laying off risk over the weekend is beneficial, but the overall effect on volatility is uncertain. The main issue preventing big banks from trading perpetuals is the lack of meaningful liquidity, with the volume of perps linked to traditional assets still relatively small from Wall Street's perspective.
Additionally, large institutions face structural issues, such as the need for a different infrastructure to support weekend trading, as their existing systems are designed for traditional market hours. Clearing and settlement rails, which are mostly weekday-based, also pose a challenge. Even when weekend trading is available, much of the financial infrastructure relied upon by large institutions remains closed.
The biggest challenge may not be keeping markets open but keeping the underlying financial system operational. For now, perpetuals remain in the domain of crypto-native firms, proprietary trading shops, and savvy retail traders.
These instruments provide a tool for traders to gauge how the market will trade when it opens if news breaks out during the weekend, offering a better idea of the bets' direction after the weekend. Perpetual markets have become another source of information before traditional markets reopen, with some traders watching crypto markets throughout the weekend to gauge where traditional futures may begin trading once the CME opens. This might be the first signal that perpetual futures are starting to influence traditional markets, not as a replacement but as another source of price discovery.
Perhaps the biggest impact of perps thus far is that they might be influencing how some traders behave, with the potential to reshape the traditional market. While volumes are still modest, and big-money institutions are cautiously watching, there are signs that old habits are already beginning to change for traders. With continuous trading hours, some traders may no longer have to spend time waiting and can start making money either by trading or tracking these contracts.