What does the term latent factors refer to ? Latent factors are those factors which are important in order to make recommendation predictions, but these factors are not directly given to the model, they are learned during training. That's why they are called latent.

First step for is to randomly initialize the parameters. These parameters would be the set of latent factors for each user and movie. The number of latent factors can be explicitly chosen.

Second step is to make predictions using our latent factors.

Third step is to calculate loss.

Then the optimization starts in order to minimize the loss.