Negative keywords help qualify traffic and make it more targeted. They do limit your traffic, but the traffic you do get will be more focused. This will prequalify your traffic before it clicks your ad.

A negative keyword is a word that you have decided not to show your ad for. You have regular keywords and phrases, and adding negative keywords tells Adwords not to display your ad when a negative keyword appears in the search terms with you keyword.

The most basic example of a negative keyword is the word free. Imagine an online retailer selling running shoes. That retailer may have the keyword phrase "running shoes" as a phrase match in their Adwords campaign. But, the retailer is obviously selling shoes, not giving them away. So, the phrase "free running shoes" may be undesirable. The retailer uses the negative keyword free and choose not to show his "running shoes" ad for any search containing the word free.

Why do you want to eliminate traffic? If your goal is just pure traffic, you may not want to limit your traffic. But if you are looking for qualified leads, negative keywords help you screen out unwanted impressions and traffic. Screening out traffic means that a consumer who is unlikely to make a purchase with your website doesn't click on your ad. That can save you wasted clicks. But, negative keywords also stop the ad from appearing, which reduces the impressions of your ad. The CTR measures the clicks per impression, so if you limit the impressions of your ad to targeted traffic, your CTR should improve.

Continuing the running shoes example, a keyword search turns up the phrase "running shoes clipart". The retailer is not interest in consumer looking clipart. You would not wants impressions or clicks from someone looking for clipart. So, clipart is a good negative keyword.

You establish negative keywords at the campaign or ad group level. At the ad group level, you are eliminating impressions of you ads for all searches with the negative keyword. At the campaign level, you are applying the negative keywords to all ad groups, which filters down to all keywords.

Click fraud is a well know type of Adwords fraud. Impression fraud is a lesser known tactic your competition could employ against your Adwords campaign.

The most obvious method of Adwords fraud is for your competitor to click your ad repeatedly. This called click fraud. The hope is that this will exhaust your daily budget and cause your ads to stop running.

Click fraud has the unintended side effect of raising your CTR. A higher CTR is a higher quality score and then a lower CPC bid. This offsets the damage, and prevents this fraud from becoming more rampant

A second type of fraud is impression fraud. Here, your competitor disables his ads and then proceeds to search for your common keywords. The attack is designed to create a large number of impressions of your ad with clicking the ad. This lowers your CTR. Your ad could have it's position lowered, or become disabled due to the lower CTR. This allows the competitor to obtain higher ad position.

There is no side effect offsetting impression fraud. However, an advertiser is not likely to turn off his ads during prime business hours. The fraudster would likely wait until the early morning hours where there is little traffic. This would make a good time for him to disable his ads and inflate the impressions on his competition. A spike in impressions during normally low traffic periods could be an indication of impression fraud.

Google is quite capable of recognizing multiple identical searches from a single computer or network. Adwords should be able to identify a large number of any impression fraud attempts. But, there may be large, sophisticated networks that could appear to be from many different sources, thus fooling Google.

In order to run a business online or be a successful internet marketer, there are a few tools you're going to need. Brand name software tools are often too expensive, especially when every dollar counts. Fortunately, there are alternatives to the big software names. Not only are these alternatives capable of filling your needs, but they are also free.

FTP Utilities
Everyone needs an FTP program right? FireFTP is a free, secure, cross-platform FTP client for Mozilla Firefox that provides easy and intuitive access to FTP servers. It's an add-on for your Firefox browser. It starts as a new tab within your Firefox browser and you FTP right from your browser.
https://addons.mozilla.org/en-US/firefox/addon/684

AutoMailer
Marketers need to manage their email lists. Rather than pay a monthly fee to a service like aweber.com, here is a free (GNU license) PHP script you can install. poMMo is versatile Mass Mailing software. Add a mailing list to your website, or organize stand alone mailings. Unique features such as the ability to mail subsets of your subscribers set it apart from alternatives.
http://sourceforge.net/projects/pommo/

Antivirus Software
You really can't afford to work online without some virus protection. ClamWin is a Free Antivirus program for Microsoft Windows 98/Me/2000/XP/2003 and Vista. ClamWin Free Antivirus comes with an easy installer and open source code. You may download and use it absolutely free of charge.
http://www.clamwin.com/

ZIP Utility
You absolutely needed a ZIP utility to work online. 7-Zip is open source ZIP utility software. Most of the source code is under the GNU LGPL license. You can use 7-Zip on any computer, including a computer in a commercial organization. You don't need to register or pay for 7-Zip.
http://www.7-zip.org/

Spreadsheet and Word Processing
You'll always use Spreadsheets and Word Processors. OpenOffice.org 3 is the leading open-source office software suite for word processing, spreadsheets, presentations, graphics, databases and more. It's a replacement application for Microsoft Office, and can even use Microsoft Office files.
http://www.openoffice.org/

Adobe PDF generator
The Adobe PDF format is everywhere online. PDFCreator easily creates PDFs from any Windows program. Use it like a printer in Word, StarCalc or any other Windows application.
http://sourceforge.net/projects/pdfcreator/

Video Capture Utility
Do you need to create a video? These days more and more tutorials are in video format. Jing is free program that lets you record video of what you do, or what you see. The concept of Jing is the always-ready program that instantly captures and shares images and video…from your computer to anywhere.
http://www.jingproject.com/

Graphics Editor
Would you like an alternative to the very expensive PhotoShop? Paint.NET is free image and photo editing software for computers that run Windows. It features an intuitive and innovative user interface with support for layers, unlimited undo, special effects, and a wide variety of useful and powerful tools.
http://www.getpaint.net/

Photo Editor
GIMP is the GNU Image Manipulation Program. It is a freely distributed piece of software for such tasks as photo retouching, image composition and image authoring. It works on many operating systems, in many languages.
http://www.gimp.org/

Encryption
Free open-source disk encryption software for Windows Vista/XP, Mac OS X, and Linux.
http://www.truecrypt.org/

In order to run a business online or be a successful internet marketer, there are a few tools you're going to need. Brand name software tools are often too expensive, especially when every dollar counts. Fortunately, there are alternatives to the big software names. Not only are these alternatives capable of filling your needs, but they are also free.

FTP Utilities
Everyone needs an FTP program right? FireFTP is a free, secure, cross-platform FTP client for Mozilla Firefox that provides easy and intuitive access to FTP servers. It's an add-on for your Firefox browser. It starts as a new tab within your Firefox browser and you FTP right from your browser.
https://addons.mozilla.org/en-US/firefox/addon/684

AutoMailer
Marketers need to manage their email lists. Rather than pay a monthly fee to a service like aweber.com, here is a free (GNU license) PHP script you can install. poMMo is versatile Mass Mailing software. Add a mailing list to your website, or organize stand alone mailings. Unique features such as the ability to mail subsets of your subscribers set it apart from alternatives.
http://sourceforge.net/projects/pommo/

Antivirus Software
You really can't afford to work online without some virus protection. ClamWin is a Free Antivirus program for Microsoft Windows 98/Me/2000/XP/2003 and Vista. ClamWin Free Antivirus comes with an easy installer and open source code. You may download and use it absolutely free of charge.
http://www.clamwin.com/

ZIP Utility
You absolutely needed a ZIP utility to work online. 7-Zip is open source ZIP utility software. Most of the source code is under the GNU LGPL license. You can use 7-Zip on any computer, including a computer in a commercial organization. You don't need to register or pay for 7-Zip.
http://www.7-zip.org/

Spreadsheet and Word Processing
You'll always use Spreadsheets and Word Processors. OpenOffice.org 3 is the leading open-source office software suite for word processing, spreadsheets, presentations, graphics, databases and more. It's a replacement application for Microsoft Office, and can even use Microsoft Office files.
http://www.openoffice.org/

Adobe PDF generator
The Adobe PDF format is everywhere online. PDFCreator easily creates PDFs from any Windows program. Use it like a printer in Word, StarCalc or any other Windows application.
http://sourceforge.net/projects/pdfcreator/

Video Capture Utility
Do you need to create a video? These days more and more tutorials are in video format. Jing is free program that lets you record video of what you do, or what you see. The concept of Jing is the always-ready program that instantly captures and shares images and video…from your computer to anywhere.
http://www.jingproject.com/

Graphics Editor
Would you like an alternative to the very expensive PhotoShop? Paint.NET is free image and photo editing software for computers that run Windows. It features an intuitive and innovative user interface with support for layers, unlimited undo, special effects, and a wide variety of useful and powerful tools.
http://www.getpaint.net/

Photo Editor
GIMP is the GNU Image Manipulation Program. It is a freely distributed piece of software for such tasks as photo retouching, image composition and image authoring. It works on many operating systems, in many languages.
http://www.gimp.org/

Encryption
Free open-source disk encryption software for Windows Vista/XP, Mac OS X, and Linux.
http://www.truecrypt.org/

What is the difference between the actual CPC and the maximum CPC per bid? Knowing the answer can help corner that top position on Adwords and explode your traffic.

Every Adwords advertisers knows what the maximum CPC bid is. This is price you give Adwords as the absolute most you're willing to pay for a click.

The actual CPC is what you pay. These two numbers are almost never them same. You will almost always pay less in the actual CPC. The actual CPC is the cost to raise your ad above the next advertiser, based in part on your quality score.

For example, let's say your maximum CPC bid of $0.25 would get you the 3rd ad position. Adwords will charge you just what it costs to beat the 4th ad. This could be $0.10, $0.20 or the full $0.25.

This is known as a Vickrey Auction.

Another important point is that prior to 2007 Adwords based your ads position on the combination of the actual CPC and quality score. Since 2007, Google changed to base the position on the maximum CPC bid and the quality score.

The quality score component of this formula is closely related to your CTR. The better a CTR/ quality score, the cheaper it is for you to achieve top positions. For example, an ad with a 2% CTR and $0.25 max CPC bid is the same as an ad with a 1% CTR and a max $0.50 bid. If both bid $0.50, the ad with higher CTR wins.

You can use this to your advantage. You can set your maximum CPC bid much higher than you really want to pay. You know that the actual cost will be less. Plus, you can be assured of a higher ad position because Google will base the ad position on this inflated maximum CPC.

You could theoretically bid $100 per click. This would guarantee you the top ad position, because Google will base the ad position on the high bid. You would know that your actual CPC would be nowhere near $100, but instead just enough to beat out the second ad. A keyword with no competition would cost $0.05 or $0.10 assuming you had a good quality score.

Assuming you have a good CTR rate of 1% or better, it would impossible for any other advertiser to take the top position from you. Since google bases the top position on the maximum CPC, and you are at $100 per click with a good quality score and CTR, you would be unbeatable.

But there are some risks with inflating the maximum CPC. A competing advertiser could increase is maximum CPC. You would still have the top position, but it would more expensive to beat the number 2 ad. It's quite possible for the actual CPC to go beyond your budget or comfort level. You would need to be very vigilant to make sure you do not cross this threshold.