Imagine you're hanging out on a Sunday night, suddenly there's news of a war breaking out in the Middle East and you can immediately set up a position (entry) to buy gold at that time without having to wait until Monday morning.
This may become a reality soon! The United States' derivatives market regulator, the CFTC (Commodity Futures Trading Commission), is now asking for public input and views on the launch of perpetual contracts and 24/7 trading for commodity products such as gold and traditional energy (oil and gas).
This drastic step was taken after several "big sharks" in the financial industry complained about the existence of offshore platforms and excessive market risk.
CFTC Chairman, Michael Selig, stated that a clear data-based record is essential to enable exchanges to understand the impact and implications of this new contract design on the global market.
What Are 'Perp' Contracts & Why Are They So Popular?
For those of you who are familiar with crypto trading, you must know about perpetual contracts (or called perps). This is a type of derivative contract that has no expiration date.
Why Do Institutions Like It? Institutional traders like this product because it is easier to manage and they do not have to worry about rolling over (converting) old contracts to new monthly contracts periodically.
Why Are Critics Worried? This type of contract usually offers high leverage. Critics worry that it will attract retail traders (retail investors) aggressively, thus increasing the risk of large losses.
The Big War Between Traditional Markets & Crypto Platforms
The issue of commodity market regulation is heating up due to these two major clashes:
The Kalshi vs CME Group Issue Previously, the CFTC had given permission to the Kalshi platform to launch perpetual futures contracts for Bitcoin. However, this permission was not liked by the CME Group (Chicago Mercantile Exchange). CME sued the CFTC, claiming that the regulator violated the law by classifying the complex product as futures, rather than as swaps.
Threat of ‘Hyperliquid’ Platform Two global exchange giants, CME Group and ICE (Intercontinental Exchange), have expressed concerns about perpetual energy trading (such as oil and gas) offered on the offshore crypto platform, Hyperliquid.
CME and ICE claim that commodity trading on the platform could disrupt price manipulation on their official exchanges. Therefore, they are urging the US government to force Hyperliquid to officially register as a regulated entity.
Three Major Impacts If Commodities Can Be Traded 24/7 Like Crypto
If the CFTC approves this proposal, the traditional commodity trading landscape (oil, gas, gold, copper) will change 100%:
No More ‘Market Close’ or Weekend ‘Gap’: Often, if there is major geopolitical news on Saturday/Sunday, commodity prices will jump (gap up/down) when the market opens on Monday morning. If it becomes 24/7, prices will move in real time. The risk of accounts being stopped out because of the ‘gap’ on Monday morning can be reduced.
Can Hold Positions for as Long as Possible: Because there is no contract expiration date, you are not required to close the position according to the contract month anymore. You can hold the position for as long as you want, as long as the account margin is sufficient.
Use High Leverage & Liquidation Risk: This type of contract is usually offered with very high leverage. For retail traders, this is an opportunity to make quick profits with small capital, but the risk of the account being liquidated is also much faster if the market goes in the opposite direction.
But There Is a 'But' That Makes the Exchange Giants Worried...
That is why CME and ICE are making noise with regulators. They are worried that the lack of liquidity at night or on weekends can cause commodity prices to be easily manipulated by large speculators. In addition, analysts and bank risk management systems have to work non-stop to monitor the market.
Conclusion for Traders, the current trend shows that traditional financial markets are now being actively "crypto-denied" in order to meet the demands of a new generation of traders who want non-stop market action.
This matter is still in the CFTC phase asking for public opinion and is being closely scrutinized. If it is really approved, are you ready to face the XAUUSD chart on Sunday night?
