What does Basis Differential mean?
Basis Differential is the difference between the futures price and spot price for a commodity. Basis differentials can also be attributed to grade or location.
Futures Knowledge Explains Basis Differential
Basis Differential, in the natural gas market, is the difference in gas futures price at one delivery point and gas futures price at another location. In the U.S., Henry Hub is considered as the main trading hub for natural gas. So basis differential is the difference in the Henry Hub spot price and the natural gas spot price in a specified location.