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 profiting from their bets, but by lunchtime on Fridays, their attention turns to assessing the level of risk they can tolerate until markets reopen on Sunday evenings. The 48-hour period when markets are closed can be particularly challenging for traders holding positions tied to highly active markets, as they are unable to adjust or rebalance their bets during this time. According to Mustafa Al Niama, former head of digital assets at Goldman Sachs, 'from around lunchtime, the desk essentially stops thinking about making money and starts thinking about what they can live with for roughly 48 hours until the Sunday evening reopen.' This ritual is well-known among commodities options traders, who by the end of the week, are more concerned with whether they are comfortable holding their position over the weekend, given their inability to adjust or rebalance their bets during this period.
As Terry Duffy, chairman and CEO of CME Group, noted, 'risk, whether geopolitical or not, does not recognize weekends.' However, markets have traditionally been closed on weekends, and planning for potential weekend and after-hours catastrophes has long been a part of a trader's job. Earlier this year, an unusual event occurred in the oil options market, disrupting this long-standing routine.
As tensions between Iran and Israel escalated, oil-linked futures experienced a sudden surge in volume over a weekend in March. Although traditional commodity markets were closed, traders did not have to wait for the markets to reopen before reacting, instead turning to crypto exchanges to trade derivatives contracts known as 'perpetual futures,' which operate around the clock. The total value of all active contracts on the decentralized exchange Hyperliquid reached a record $1.2 billion on a Sunday when traditional commodity markets were closed.
While weekend volume is still smaller than weekday volume, at least by Wall Street's standards, it is no longer negligible. This highlights the emergence of a 24/7 venue for oil derivatives trading, which barely existed a few years ago. According to Martin Lee, market insights lead at DWF Labs, 'we're roughly seeing 2-3 times more volume on average on weekdays versus weekends for oil perps on Hyperliquid over the last three months.' Despite activity cooling after the spike that followed the Iran conflict, Lee noted that weekend trading's share of overall volume has grown by roughly 25% since March.
This shift may be quietly influencing another aspect of the oil market. Researchers at Energy Aspects, an energy and macro analytics firm, believe that the dynamics of how traders price short-dated West Texas Intermediate (WTI) crude options are set to change due to the rapid growth of perpetuals on crypto exchanges. For years, the implied volatility of WTI contracts has fallen on Fridays, as traders have been reluctant to pay for protection through options or derivatives that they cannot actively manage while markets are shut.
To avoid being exposed over the weekend, many traders have reduced their positions before Friday's close, creating what Energy Aspects describes as a persistent Friday discount in implied volatility. However, this discount has begun to narrow, according to Energy Aspects. Analysts led by Tim Skirrow noted that 'for the first time, traders can hedge options exposure through the weekend, when geopolitical risk has become disproportionately concentrated.' The availability of perpetual contracts may lead traders to hold or even buy options they previously would have sold before Friday's close, potentially creating an opportunity for traders to capture profits over the weekend if the market becomes chaotic. In theory, this could result in roughly 40% more hedging sessions over the life of a typical contract, according to Energy Aspects.
The growth of perpetual futures trading has significant implications for traditional markets. While finding any edge to capture a few basis points of profit may sound like a trader's dream, most traders are likely to remain cautious until continuous trading becomes more widespread. Even traders who find the strategy plausible are hesitant to overstate its impact. One trader at a proprietary market-making firm active across both traditional and crypto markets noted that 'is volatility coming down because of that [availability of perps]?
I don't think so.' However, the trader acknowledged that the ability to hedge over the weekend is valuable for traders, as it provides more opportunities to manage risk. The trader agreed that, given the ability to hedge over the weekend, a trader may be willing to pay a higher price for volatility on a different venue than the CME.
The main issue is not that institutional traders cannot trade perps, but rather that they do not see it as profitable enough to invest in, at least not yet. Lack of meaningful liquidity is a major reason institutional traders are likely staying away. The volume of perps linked to traditional assets such as commodities and stocks has increased over the past few months, but it is still relatively small from Wall Street's perspective. For example, in March and April, the average volume of crude oil perps accounted for about 2% and 4%, respectively, of the primary futures contract equivalents traded on traditional exchanges, according to Binance Research data.
While those numbers are significant for crypto, they are still modest compared to traditional markets. The hardest challenge in trading is finding someone who wants to take the other side, according to the trader at the proprietary market-making firm.
In the absence of traditional liquidity providers, it is difficult to get a significant bet on. Issues with existing infrastructure also pose a challenge.
Large institutions, such as banks, already have systems in place for traditional market hours. Even if weekend trading has sufficient volume for them to participate, they will need a different structure for it, according to BitGet's Gracy Chen. Having the option to trade does not mean that people would automatically start doing so, according to DWF's Lee. There needs to be a broad shift in operational capacity from institutions and corporations to cater to 24/7 trading.
One of these structural issues might be how institutions operate, or rather, do not operate on weekends. Banks are closed on Saturdays and Sundays, making it challenging to collect margin for perps trading mid-weekend, according to Mysten Labs' Mustafa Al Niama. These large institutions would need the backing of clearing and settlement rails that actually move money, which is currently mostly available on weekdays.
Even when weekend trading is available, much of the financial infrastructure that large institutions rely on still is not. Banks do not move collateral around the clock, clearing systems largely keep weekday hours, and firms cannot simply summon additional capital on a Saturday afternoon. The biggest challenge may not be keeping the markets open but keeping the financial system underneath everything open as well. So, who is actually trading perps?
For now, these instruments remain in the domain of crypto-native firms, proprietary trading shops, and savvy retail traders. Predominantly, it is the same typical retail, market makers, and prop shops that are trading perps, according to Al Niama.
They are probably using perps mostly for basis trading or carry trades, rather than hedging, as it is a lucrative delta-neutral type of trade. Perps play a crucial role in giving traders a tool to gauge how the market will trade when it opens if news breaks out during the weekend.
Before perps, it was mostly a guess of how an asset would trade once the traditional market opens. But now, because perps trade 24/7, traders at least have a better idea of the direction of their bets after the weekend. Hein Tibosch, head of digital assets OTC and product at Flow Traders, said perpetual markets have become another source of information before traditional markets reopen.
The perps will be a pretty good indicator of where the market is heading, providing some direction. The trader at the proprietary market-making firm described the same shift, noting that it is not really a surprise anymore by Sunday's open, as traders increasingly watch 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 for CME, but as another source of price discovery while the rest of the market sleeps. Perhaps the biggest impact of perps thus far is that the instrument might be influencing how some traders behave.
For the crypto industry, it actually is a big deal because, for the longest time, the industry has always been the student, according to Al Niama. However, perps might become one of the first ideas moving in the opposite direction, where traditional finance is potentially influenced by crypto innovations.
Whether perps can actually reshape the traditional market remains uncertain, with volumes still modest and big-money institutions cautiously watching. Meanwhile, CME's proposed 24/7 futures contract trading remains uncertain. But there are signs that on Friday afternoons, old habits are already beginning to change for traders. They will still spend the end of the week worrying about the weekend, the difference is that if there are continuous trading hours, some of them may no longer have to spend time waiting, and can start making money either by trading or tracking these contracts.
For lots of players, for example, a hedge fund or quant shop, if you can just have your strategies run instead of five days a week, seven days a week, that's two extra days of trading, according to Flow Traders' Tibosch. So, if you can have alpha, bring it on, he added. And it seems, at least in the future, one assumption appears less permanent than it once did: that Friday's closing bell marks the beginning of two days when traders simply have to wait. I think that markets will be 24/7 down the road, all markets, said CME's Duffy.
Perhaps it's time for trading desks to start preparing to properly staff for an around-the-clock market and forget the old routine of the weekend effect.