Risk tolerance is the degree of uncertainty that a person may tolerate regarding the results of their trading or investing, and it varies depending on their financial objectives, time horizon, and level of psychological comfort.
With a higher risk tolerance and a focus on short-term market changes, traders take larger positions in an effort to make quick gains. They keep a careful eye on the markets and respond quickly to changes. Investors make selections based on financial objectives like retirement or wealth preservation, prioritising capital protection and having a lower risk tolerance.
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Risk tolerance has a big impact on trading techniques, portfolio diversification, and asset allocation. Leveraged or options trading is an alternative for aggressive traders, whilst conservative investors prefer a well-balanced portfolio of various assets.