We have seen that there are many risks and many factors which affects our risk decisions. Hence it is important that we understand our Risk Appetite and Risk Capacity before we decide on how much risk we should be taking. Risk Appetite is identified by administering a Risk Profile questionnaire. There are many questionnaires available in the market including those advanced questionnaires based on psychometric profiling. The Risk profiling questionnaires can help in identifying the Risk appetite of individual. Risk appetite can be segregated into Aggressive Risk appetite, Moderate Risk appetite, and Conservative Risk appetite. While Risk appetite is the ability of investors to handle losses, Risk capacity is based on Investors age, income, Net worth and goals. Combination of Age, Income, Net worth and Goal Time frames can be used to identify Risk capacity of Investors. Young Investors have more risk capacity than old investors, similarly investors with high Net worth have high Risk capacity and low Net worth have low risk capacity.