I’m interested in technology, but it’s not really what I’m good at (and it’s also not what I’m studying – probably a good thing for my grades!). So while I read about the latest technology and high-tech businesses in the news, I don’t always understand what the heck’s going on. One thing that I find particularly confusing is the idea of an algorithm. I’m a bit embarrassed about this, but I feel like I don’t really understand what an algorithm is. Is it a formula? A computer program? What makes it different from those things? And why does everyone want to have algorithms now?
The tech world is full of fancy terms, and it’s easy to get confused. You’re quite right that algorithms are everywhere these days in tech and business. But what is an algorithm?
According to Techopedia, algorithms are “a detailed series of instructions for carrying out an operation or solving a problems.That’s similar, if not quite identical to, the concepts that you tossed around: formulas and computer programs. Think of an algorithm as a series of mathematical formulas and computer-style switches, and you have the basic idea. Computer programs can use algorithms within them, of course, and very often do.
Algorithms are powerful tools. Using algorithms and computers, humans can process information more quickly. Algorithms can be designed to trigger actions or decisions, produce informative and insightful information, and much more. Let’s take a look at some of the practical uses of algorithms.
In finance, algorithmic trading refers to the use of algorithms in making investment decisions. With algorithms, traders can move quickly and at scale based on complex factors in the stock and bond market, say the developers behind AlgoTerminal automated trading software. And algorithms make it easy for companies to maintain mutual funds and exchange-traded funds that are “passively managed,” a term that means a fund has set rules for what it contains (for instance, a fund might exist only to track the S&P 500).
Algorithms are used by search engines, too. Google guards its algorithm jealously, but we know that it takes many numerical factors into account, such as the density of keywords. After crunching the numbers based on your search, Google’s algorithm produces the list of sites on the search engine results page. There’s a whole industry dedicated to trying to figure out how this works (so that websites can benefit): search engine optimization, or SEO.
Algorithms can be massively complex, but the basic concept is as simple as it is powerful. Algorithms solve big questions step by step, making them ideal for use with computers – and for solving some of the tech and business worlds’ biggest problems.
“Maths is at only one remove from magic.” – Neel Burton