What is the strategy called that involves purchasing similar quantities in two separate markets to mitigate price fluctuations?

The strategy that involves purchasing similar quantities in two separate markets to mitigate price fluctuations is known as hedging. This approach allows businesses to reduce the risk associated with price volatility by taking offsetting positions in different markets. For example, if a company anticipates a price increase in a commodity, it can purchase the commodity in two markets to lock in prices, thereby stabilizing costs and minimizing potential losses from price swings.

Hedging is commonly used in financial markets, where investors engage in various transactions to protect themselves from adverse price movements. By engaging in this strategy, organizations can better manage the uncertainties of fluctuating costs, ensuring a more predictable financial outcome.

While forward buying involves purchasing a product for future delivery at a predetermined price, it does not necessarily involve mitigating price fluctuations between different markets. Cost averaging refers to consistently purchasing a portion of a particular asset over time to average out the price, which does not specifically address the aspect of using separate markets to manage price risk. Speculating, on the other hand, involves assuming risk with the expectation of substantial profits, rather than focusing on risk mitigation.