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.
