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  3. Risk Tolerance

Risk Tolerance

Risk tolerance is a person’s willingness to accept uncertainty and losses, considered separately from financial capacity and product knowledge when setting limits.

Defined termReviewed 16 July 2026

Related terms

Capacity for LossInvestment Time HorizonRisk ManagementAsset AllocationDay TradingFear and Greed

Educational risk notice

This material is general education, not personal investment advice or a promise of results. Markets can move beyond planned levels, and losses can exceed expectations when leverage, liquidity, gaps, or operational failures are involved.

Read the full risk disclosure
Trading glossaryReviewed 16 July 2026

Definition

Risk tolerance is a person’s willingness to accept uncertainty and losses, considered separately from financial capacity and product knowledge when setting limits.

In market context

Stated tolerance can change when losses become real, which is why behavior during past volatility and the purpose of funds matter alongside questionnaires. A high willingness to take risk does not increase capacity for loss or make leveraged and illiquid products suitable. Time horizon, obligations, experience, and recovery ability should therefore be assessed together when setting portfolio and position limits.

Source

Use the primary source for fuller regulatory or market context.

Investor.gov — What Is Risk?

Educational risk notice

This material is general education, not personal investment advice or a promise of results. Markets can move beyond planned levels, and losses can exceed expectations when leverage, liquidity, gaps, or operational failures are involved.

Read the full risk disclosure

Related glossary terms

Selected from explicit term relationships and shared tags.

beginner3 min

Capacity for Loss

Capacity for loss is the financial ability to absorb an investment loss without undermining essential spending, obligations, or important future goals.

risk · psychologyRead guide
beginner3 min

Investment Time Horizon

Investment time horizon is the expected period before invested funds will be needed, reassessed alongside goals, liquidity, and capacity for loss.

portfolio · riskRead guide
beginner3 min

Risk Management

Risk management is the structured process of identifying, measuring, limiting, monitoring, and reviewing exposures that could impair a trade, portfolio, or account.

risk · strategyRead guide
beginner3 min

Asset Allocation

Asset allocation is the planned division of a portfolio among asset classes according to an investor’s objectives, time horizon, and risk constraints.

portfolio · strategyRead guide