When trading days or entire weeks were really quiet, you'd hear bursts of laughter coming from the box as a couple of crafty Cockneys played "air-pool" in the trading pit, to the amusement of those around them.

Those traders and brokers observing would report the current status of the game to their banking clients, who in turn would pass the information on to office colleagues.

Before you knew it, the entire City of London knew the up-to-the-minute score of a fictitious and invisible game of pool taking place in the pits of the LIFFE exchange.

But make no mistake about it, while it all appears very friendly on the surface, I've heard it said that many of the traders and brokers there (the same ones who'd buy me a lunch or a gin or two after the pits had closed) would sell their own grandmother.

Competition to win clients was fierce, and a broker would win only by showing that his trading team had some kind of an edge in the pit.

Maybe they had the best position near the center of the arena. Or they were renowned for large order size, which often ensured one client had better order execution than another.

The motto in the City of London is: "My word is my bond." That means that when one strikes a deal, there is no recourse. A deal is sealed by a verbal contract.

But the world of futures trading belonged not to gentlemen but to loveable rogues with sharp minds, nerves of steel and a hunger for success. It's a world where manners don't count.

At the Japanese bank where my trading career began some sixteen years ago, I once heard an unexpected cacophony of screams coming through one of the boxes on the desk.

I shouted to a colleague on the next desk to ask what was going on. Usually, a sharp rise in noise meant that big orders were hitting the market, and of course as traders we had a duty to find out what was happening.

On this particular day, a young and extremely pretty Japanese girl who sat opposite me was missing from the office, as was her Japanese Chief Dealer.

Ria was the yen money trader and she reported to her boss, Mr. Yamanake.

She was delightfully delicate with her slim five-foot-nothing frame, and she always wore an above-knee-length black skirt and very high heels to boost her diminutive size.

Although a very shy lady, she was very attractive and always turned heads as she walked modestly down the street or through the office in a male-dominated environment.

You also have to remember that the Japanese are a rather conservative people. They are easily embarrassed, very modest and honorable. They greet each other with a respectful bow and do the same when they say goodbye.

On this particular morning, Mr. Yamanake and Ria had taken up an offer from their floor broker to visit the trading pits at the LIFFE exchange.

I've been on a couple of those floor visits myself, and while the atmosphere is electric as traders and brokers live on their wits, it can also be a pretty hostile place.

The natives – each of them brimming with testosterone and savage wit – stare at you, your host and one another as you take the tour from pit to pit.

The floor of the LIFFE exchange was like a long exhibit hall, with tall ceilings from which countless cameras and monitors were suspended. The walls were decked from end to end with Ferranti boards, which displayed up-to-the-second prices for hundreds of contracts currently being traded.

There were perhaps fifteen or so pits, where a complex of commodity contracts was traded. Some less popular commodities had a tiny number of traders around them.

I remember that London's Eurodollar pit was quite literally two feet by one, marked by a hole in the ground. Two or perhaps three senior traders stood around doing relatively little.

That was due to the fact that Chicago dominated the Eurodollar market and London had a mere representation. The traders were simply obliged to stand there and transact the occasional out-of-hours trade until Chicago opened.

But then there were huge bustling pits where London was the dominant force and the only place to trade certain contracts.

The "short sterling" pit was home to the British interest rate complex – and it was one of the rowdiest in the entire hall.

Most days, some 15,000 contracts representing about $13 billion in pure speculation would change hands between traders in the pit. It was there I'd regularly transact $800 million worth of trades some days.

Now, back to those screams I was telling you about.

After hearing the volume of noise from the commentary box jump sharply, I asked my colleague over the other side of the desk what was happening. He picked up the phone to his broker and asked what was cooking.

Putting the receiver down, Stavros was grinning from ear to ear having heard the story recounted to him from the floor.

He shouted over to me that apparently some Japanese clients were getting a floor tour from their broker.

It seems that just as they reached the bustling short-sterling pit, young Ria had tripped in her heels and tumbled to the floor, much to the delight of the jeering crowd of traders now laughing heartily at the sight of her.

I looked at Stavros and we both looked at the vacant chairs opposite me – the ones belonging to Ria and Mr. Yamanake.

"Oh dear," I said. "Oh dear."

Exchange Traded Funds

Got an ETF in your investment portfolio yet?

Chances are, you might. According to a September estimate by Boston-based Financial Research Corp., total assets committed to exchange-traded funds could rise 29% to $1 trillion by 2010.

In 1993 the first ETF (known as the Spider) was launched to track the S&P 500 index. Today there are 201 funds, with 50 new ones added in 2005.

The flow of investments into ETFs totaled $53.9 billion last year, causing the total value to surge to $296 billion, according to the Investment Company Institute.

ETFs seem to be a more popular tool among institutions.

Because of the liquidity of the ETF market, when a portfolio manager takes in fresh money, with a single stroke they can put the cash to work with a sector or index ETF. That keeps the money fully invested until the manager decides which individual shares he wants to commit the money to.

Since ETFs are passive rather than actively managed, the lower fees tend to get passed on to clients.

For example, on a $10,000 investment, an ETF investor can expect to pay $36 annually in fees, compared to $147 for actively managed funds.

Similarly, internationally devised ETFs command just $55 in fees per year as opposed to the $174 fee on actively managed funds.

Investors by and large have warmed to the ETF revolution with one key feature being that the divide between professional and small investors has narrowed.

The ability to invest in a single share of an index, sector or single commodity (such as gold) has made for smarter investing by the army of small investors.

Investors have poured $6.1 billion into the StreetTracks Gold Trust since it began trading in November 2004. It makes me wonder whether that money would otherwise have been put into individual gold-mining stocks, which are clearly riskier.

Investors in our SectorTrade newsletter, a service of MoneyNews.com, have been using ETFs exclusively to navigate the stock market over the last nine months.

Readers have been treated to a tour de force of the investment world, which has allowed them to diversify their holdings across economic sectors while avoiding the risks associated with buying individual shares.

Commodities Corner

Throughout the trading day, I keep one eye firmly fixed on the price of crude oil, and I frequently check prices in the overnight session as well.

My view on crude oil is relatively straightforward. I don't believe that economic growth can continue to flourish in the event that oil trades above $70 per barrel.

To me, that price is a line in the sand. The situation reminds me of that children's party game in which party favors are hidden in the room before the kids are let back in. Friends chant "too hot!" or "too cold!" to help direct participants toward the loot.

In August and September hurricanes paralyzed the southern states and drove the price of crude to a record price of $70.85 – and consumer confidence took a hammering in the aftermath.

Subsequently we fingered a drop in oil prices back toward the $50 mark.

We still believe that there is a strong element of speculation baked into the price of oil based on hopes that an Iranian-inspired nuclear crisis will be sufficient to restrict supply to the point of crisis.

This week the price of crude failed to rise above its January high point and actually fell back to a low for the period at $64.40 – down almost 5%.

The Iran situation continued to drive the price of oil this week. The crescendo appears to be dissipating as the U.S. has said that it won't seek immediate sanctions against the Middle Eastern nation.

Speculation had centered on precisely that outcome, which might lead to a retaliatory export cut from the world's fourth-largest oil exporter.

Traders have recently ignored the fundamental fact that there are ample inventories of crude. Instead they have focused on the potential for a huge supply shock that simply hasn't arrived.

That type of focus may turn out to be dangerous. The further crude oil falls, the more the disappointed bulls will be forced to cut their losses to prevent even bigger losses.

It seems to me that traders have got themselves all bulled up only to see the story fly in their faces.

The accompanying crisis in Nigeria, where the kidnapping of four foreign oil workers has curtailed production, has also dissipated. The Nigerian oil minister said this week that the disruption would be restored in two weeks.

It's all conspiring badly for the bulls.

Take a look at the chart and see how Thursday's slide might be the start of something bigger.

The way I see it, it's beginning to look highly likely that the speculative assault against the contract high last August has failed.

This week's failure should send oil futures down from $65 to the December lows at around $56 before a lunge toward $50.

According to Bloomberg data, Iran's daily oil production in December was 3.9 million barrels, which amounts to 5% of global output. Saudi Arabia has just 1.3 million barrels of spare capacity to hand, and other leading producers have a total of 400,000 barrels.

But this week the U.S. Energy Department reported that the U.S. had 321 million barrels of crude inventories. That leaves oil supplies 11% above their five-year average.

Gas prices tumbled on a similar announcement that inventories had surprisingly risen.

Another factor contradicting speculators in the crude oil story is the harsh fact that from mid-December through Feb. 9, heating oil demand will be 13% lower than normal.

The northeastern corner accounts for 80% of overall U.S. demand for heating oil.

I feel an oil slick coming this way.

Have a great week!

Andrew Wilkinson
Senior Newsletter Editor

P.S.  Multiply your profits and cut risk down to size with my Triple Edge Alert options trading strategy. We just closed out a monster quarter capturing big trading profits in Toro (TTC) +63%, Gamestop (GME) +56%, Molson Coors (TAP) +47% and MDC Holdings (MDC) +19%. Join us for an even bigger 2006 starting with our next trade. Just last week I sent my subscribers an urgent Trading Alert to buy calls on a medical instrument manufacturer that the Triple Edge Alert System identified as having strong momentum. That trade was up 31% in its first day. The great news is that it is not too late to get in on the next one. I want you to be there with us. Go here now.