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The Definition of Algorithm
It is usually stated that an algorithm is a sequential implementation of premeditated steps intended to help in achieving the primary goal of the algorithm. The most prevalent example of an algorithm is a recipe intended to be of assistance when an individual follows certain steps in order to prepare a meal. More importantly, algorithms make up the systems that allow computers to process the data. On a bigger scale, algorithms became an integral part of our life as now algorithms are everywhere from ordering food online to booking plane tickets and purchasing various goods (Steiner, 2013). Nonetheless, financial companies have also found a number of ways to use algorithms in their practice. These practices include asset management, loan pricing, and many more complex tasks. The most widely known example is algorithmic trading which allows the business to evaluate the price of the trade, assess the risks related to the trade, and calculate the time necessary for the trade (Wang, 2014).
The Explanation of Business Algorithms
In most cases, the business algorithm described above is used to sell securities. This choice is justified by the speed at which this algorithm performs operations (needless to say, it works way quicker than any human) (Wang, 2014). The method used to summarize the data concerning all the operations significantly simplifies the way the data is presented and allows end users to access the data in a format that is easily understandable. The only thing the users have to do is set up required parameters that would comply with the trader’s necessities (Wang, 2014). There is a number of different business algorithms that make lives of businesspersons easier.
Types of Algorithms
First of all, there is a number of algorithms intended to help the investors to decide if they should buy or sell stocks. The type of algorithm that evaluates short-range prices in comparison to the usual long-term price is called a mean reversion (Steiner, 2013). In case if short-term prices are higher than the average ones, the trader will profit greatly if he or she sells these assets. Another type of algorithm is called seasonality. This algorithm depends on particular seasons of the year when prices rise or fall significantly (Steiner, 2013).
An Example of a Business Algorithm
For instance, a trader sets up the algorithm in a way that would allow him or her to sell the stocks if they rise above or fall below a certain point (Steiner, 2013). A number of criteria should be taken into consideration when dealing with complex trading situations. Computers are able to perform these operations quickly (Steiner, 2013). Therefore, they can be considered an essential asset of an efficient trader.
Computer Science vs. Business Algorithms
The development of a business algorithm consists of several important steps (Wang, 2014). Initially, the individual would present the issue mathematically, so it would be easier to transfer the pseudocode to software. After that, the programmer inputs the necessary data and checks its validity. The application is thoroughly tested before the release (Steiner, 2013). The parameters set in the application are checked through the prism of the parameters inherent in the code of the program. For financial software, it is rather important to have the ability to introduce as many parameters as possible if there is a necessity to perform a complex trading operation (Steiner, 2013).
Steiner, C. (2013). Automate this: How algorithms took over our markets, our jobs, and the world. New York, NY: Penguin Publishing Group.
Wang, J. (2014). Encyclopedia of business analytics and optimization. Hershey, PA: Business Science Reference.