By Friday afternoons, commodity trading desks undergo a significant shift in focus. Instead of concentrating on making profits, traders start assessing the level of risk they can tolerate until markets reopen on Sunday evenings. This is because anything can happen over the weekend, from unexpected news to geopolitical events, 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 familiar to every commodities options trader, who must decide whether they are comfortable holding their position over the weekend, as they cannot adjust or rebalance their bets during this time. However, the rise of crypto exchanges has introduced a new dynamic, allowing traders to trade derivatives contracts called 'perpetual futures' around the clock. This has created a 24/7 venue for oil derivatives trading, which is influencing the traditional finance sector.
Researchers at Energy Aspects note that the growth of perpetual futures on crypto exchanges is changing the way traders price short-dated West Texas Intermediate crude options. The implied volatility of these contracts, which measures the likelihood of price fluctuations, is no longer depressed on Fridays, 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. Traders can now capture profits over the weekend if the market becomes chaotic, rather than simply sitting on their positions.
While finding an edge to capture a few basis points of profit may sound like a trader's dream, it remains a theoretical opportunity for most traders until continuous trading becomes more widespread. The lack of meaningful liquidity is a major reason institutional traders are still staying away from perps. However, the volume of perps linked to traditional assets has increased significantly over the past few months, and it is likely that this trend will continue.
As Gracy Chen, CEO of Bitget, notes, '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.' The biggest challenge for institutional traders is not the lack of liquidity but the infrastructure required to support 24/7 trading. Banks are closed on weekends, and it is difficult to collect margin for perps trading mid-weekend. Large institutions need a different structure for weekend trading, which includes the backing of clearing and settlement rails that can move money around the clock. As CME's Terry Duffy notes, 'You cannot do that until you put the infrastructure in place that you have Monday through Friday.' Despite these challenges, perps are still being traded, primarily by 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. Perpetual markets have become another source of information before traditional markets reopen, giving traders a better idea of the direction of their bets after the weekend. The rise of perps may be influencing how some traders behave, and it could potentially reshape the traditional market.
While volumes are still modest, and big-money institutions are cautiously watching, there are signs that old habits are changing for traders. With the possibility of continuous trading hours, some traders may no longer have to spend time waiting and can start making money by trading or tracking these contracts. As Flow Traders' Hein Tibosch notes, '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.' The future of trading may be 24/7, and it is time for trading desks to start preparing to properly staff for an around-the-clock market.