# What Is an Algorithm?

An algorithm is a series of instructions that tells the computer how it should transform facts into useful information. The facts are data, and the data needs to become useful information. There are algorithms for everything, and they help computers perform their functions with routines. They are used for trading systems and pricing financial instruments.

Understanding Algorithms

Financial companies often use algorithms for loan pricing, stock trading, and other automated functions. Algorithmic trading helps decide the timing, pricing, and quantity of stock orders. Computer algorithms reduce the amount of time something takes. It also helps to make slow processes better. They can save money for many companies.

The Process for Algorithms

1. Input the Data

Computers need an input of data to make a decision. To put it into perspective, when you get dressed, you need to know what clothing you have, what is expected, and the weather. You may need to know other personal preferences. In computers, this information is imputed as data. Terms can be assigned to different things, and the end result yields information.

1. Transformation

After the data is input, computation takes place. This is the process of arithmetic, decision-making, and repetition. This is a series of if … then statements, and the repetition can be in as “for each item …”

1. Output

The last step is output, which is where the computer expresses the answer. The output is essentially more data, but it can also involve presenting information. The computer might place words on the screen or it could be another form of communication.

Machine Learning Algorithms

Machine learning algorithms are where the computer collects data to predict what people are going to do in specific circumstances. An algorithm will constantly put data in and take it out, but when you click on a movie or a type of post, you will find that you get a lot of new ads about similar topics. Every piece of technology that you use has algorithms, and it is a great way to collect data. There are many algorithms working behind the scenes.

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