New tech stocks can be among the market’s biggest winners and losers.

New tech stocks are new stock issues of companies that operate in the technology sector. These are companies that make electronics or software. Successful new tech stocks can experience enormous growth. But new tech stocks, however, are also susceptible to market volatility.

There’s a delicate balance between risk and reward with new tech stocks. Fast-changing technology offers huge opportunities when investing in these stocks. However, fast change can also bring danger from new competitors.

The success or failure of any tech stock is subject to a variety of factors. The company may start out with a promising business plan. But it needs all sorts of things to prosper in the long run: the right employees, a favourable economic and regulatory climate, a favourable competitive situation, favourable research outcomes, adequate financing, perhaps the right merger partner or acquisition—the list is long.

Here are 4 risk factors you face when you invest in new tech stocks. Later, we look at 4 ways in which you can minimize these risks—and increase your profits.

1. Marketing is as hard as inventing: Even a great new product or computer program may fail to overcome the scepticism of retailers and consumers.
2. Acquisitions can bring “time-bomb” risk: Companies sometimes grow quickly by buying other companies. But it may also be the case that those selling the companies may simply want to bail out of a losing situation.
3. Major tech stocks also make mistakes: New technology stocks often trumpet their deals with major firms, such as Apple or IBM. And it’s true that Apple and IBM have vastly more knowledge and bargaining clout than any individual investor. But they still invest in products that fail.
4. High-tech shams are common: It’s easier to set up a company and sell stock to investors than to perfect a technological breakthrough. Be especially wary when new technology stocks splurge on elaborate web sites and glossy investor brochures.

4 ways to increase your rewards with new tech stocks

1. Diversify: The high-tech sector has more than its share of winners and duds. So invest carefully and buy 5 to 10 technology stocks instead of just one. Gains on your winners should overwhelm any losses you have.
2. Focus on up-and-coming technologies: To do this, you need to know how technology is changing. For instance, the immense popularity of wireless devices, like the iPhone and tablet computers has stepped up demand for faster, more reliable wireless networks.
3. Buy multi-product companies: Technological advances come in spurts, and they leapfrog each other. Focus on technology stocks that have a number of existing or soon-to-be-released products, and avoid one-hit wonders.
4. Look for earnings: A perpetual money loser will eventually go broke, no matter how impressive its technology. But if it makes even a little money, it can stay in business and perhaps reap the bonanza of a new product.

When you buy tech stocks, do you stick with the bigger, more established companies like Apple and IBM, or do you also look at new tech stocks? Is there one key factor that you look for when you consider new tech stocks? Let us know what you think.