Should you trade commodity markets or commodity stocks-an example of CAIRN India

Whenever I trade stocks in ‘commodity’ sectors such as sugar, metals, energy(or stocks dependent heavily on them), I wonder whether it is better to directly trade the underlying commodity or not.

Below example compares taking exposure on the related commodity future(CRUDE OIL) instead of taking on the related stock futures-CAIRN INDIA. Margins/Prices are taken from Zerodha margin calculator and are illustrative.

Parameter	Equity	Equity Futures	Commodity Future
Underlying security	CAIRN INDIA LTD	CAIRN INDIA LIMITED-JUNE16 FUT	CRUDE OIL
CMP	141.65	142.8	3347/barrel
MIN LOT SIZE	1 share	3000 shares	100 barrel
MIN TRADE SIZE	14.65	428400	334700
DELIVERY MARGIN (% of trade size)	100%	13%	6%
INTRA DAY MARGIN MULTIPLE(times of delivery margin)	10x	2.5x	2x

From the above, it seems evident that IF one’s views on a stock are driven primarily by the price of a particular commodity, then it may be better to invest directly in that commodity itself, due to more leverage, than trading via that future. This will be a more direct view and lower risk of trade slippage, as evident in below table where commodity futures wins over equity futures.