Readers interested in stocks with significant upside and who don’t mind taking on risk might be looking for the best tech penny stocks. These stocks offer great long-term investment returns but typically go through higher-ups and lower downs than large-cap stocks.

If you’re new to penny stocks, let’s catch you up. The Securities Exchange Commission (SEC) defines a penny stock as any stock trading below $5 per share. Penny stocks are usually small companies whose stock doesn’t trade many shares during a trading session. Therefore, the SEC wants investors to be aware of the risks associated with investing in small companies.

Penny stock companies can mean many different things with such a broad definition. For example, some penny stocks are brand new companies that could become larger over time. On the other hand, penny stocks can also include stocks that have fallen dramatically and might not ever return to glory.

Most of you are looking for the best tech penny stocks that have the potential to become much larger companies. At the same time, all readers must be aware of the risk involved in tech penny stocks.

Why Invest in Penny Stocks

Although most penny stocks are not suitable investments, some have the potential for outstanding long-term gains. Good penny stocks are so rare because most successful companies do not IPO until they’re much larger. In other words, these companies are never penny stocks.

Penny stocks that later become larger companies are companies that IPO very early in their lives. These companies may choose to IPO early because of the need to raise capital to run the business. These companies can raise money by issuing debt or borrowing from a bank, which is sometimes very expensive. So, they may choose to sell part of the company by issuing shares instead.

Investors need to do their homework before investing because rules lump good tech penny stocks with bad ones. If you think you’ve found a penny stock worth investing your money in, make sure you also value the share to avoid paying too much for the stock.

Only a few successful penny stock investments can offer long-term investors handsome returns. Even if you’ve found one you like, there are risks.

Risks of Penny Stocks

The SEC governs stocks that trade on traditional exchanges like the New York Stock Exchange or the Nasdaq. To be traded on these exchanges, companies must disclose valuable information about the company. This information can be beneficial to investors to understand the company and to value its shares.

Though some of the best tech penny stocks trade on traditional exchanges, most do not. Instead, they trade on Over-The-Counter exchanges that do not require such disclosure. It may be challenging to get information on stocks trading on an OTC exchange. For instance, you may be able to visit the website of an OTC stock, but it may not let you see its financial statements.

In addition, stocks trading on OTC markets usually have low liquidity. A penny stock with low liquidity means that there may not be many shares available to buy or sell when you want to. If you own a penny stock and you really need to sell it, there may not be enough buyers interested in your stock. If that is the case, you may be stuck with the stock for a while. Even worse, you might need to sell the stock much lower than the current price.

Low liquidity may also produce wild short-term swings in the stock price. For example, if many investors want to buy the stock and there aren’t many sellers, the stock could shoot way up. The opposite is also true.

Best Tech Penny Stocks

Let’s look at a couple of potential tech penny stock investments.

• POSaBIT Systems (OTC: POSAF): POSaBIT sells payment systems for cannabis and CBD retailers. If you go to a cannabis dispensary, you can pay in cash or use a card to pay for your purchase. POSaBIT earns a fee from each debit card transaction. The company has been growing sales at triple-digit increases. The stock could benefit from a growing cannabis industry.
• Acorn Energy (OTC: ACFN): Acorn Energy is an IoT company that sells remote monitoring equipment. The equipment monitors the status of backup generators for hospitals, grocers, industrial companies and many more. Customers rely on backup generators to run their businesses and need them to kick in when it matters most. Acorn Energy’s remote monitoring equipment saves customers money and ensures that backup generators are ready to go.