An algorithm, often referred to as "algo," is a collection of mathematical instructions or rules that are embedded in computer software to achieve a specific result or address a particular problem or set of problems.

In the realm of cryptography and data security, cryptographic algorithms are responsible for converting readable data into a protected format that is not easily decipherable by the human eye, and then reverting it back to a readable state. These algorithms play a crucial role in data encryption, digital signatures, and authentication.

In trading, algorithms are frequently utilized in automated trading or high-frequency trading (HFT) to execute buy and sell orders for securities in microseconds (one-millionth of a second).

Algorithms can vary in complexity; some may consist of just a few lines of code, while others can extend to thousands of lines.

An example of a trading algorithm is one that operates on the principle of mean reversion. This concept suggests that prices will eventually return to their average over time. By employing mean reversion along with Bollinger Bands, an algorithm could identify stocks or cryptocurrencies that are positioned at the extremes of the bands.

The algorithm would purchase the undervalued security and sell the overvalued one. As time progresses, the price is expected to revert to the mean, at which point the algorithm would execute the opposite of the initial trades.