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In PPC advertising industry click fraud is defined as clicks generated by.

Competitors of advertisers: These parties may wish to harm a competitor who advertises in the same market by clicking on their ads. The perpetrators don't profit directly, but force advertiser to pay for irrelevant clicks thus weakening or eliminating a source of competition.

Competitors of publishers: These persons may wish to frame a publisher. It is made to look like the publisher is clicking on its own ads. The advertising network may then terminate the relationship. Many publishers rely exclusively on revenue from advertising and can be put out of business by such an attack.

Other malicious intent: As with vandalism, there's an array of motives for wishing to cause harm to either an advertiser or a publisher, even by people who have nothing to gain financially. Motives include political and personal vendettas. These cases are often the hardest to deal with, since it is hard to track down the culprit, and if found, there is little legal action that can be taken against them.

Unwanted "friends" of the publisher: Sometimes upon learning a publisher profits from ads being clicked, a supporter of the publisher (like a fan, family member, or personal friend), will click on the ads to "help". However, this can backfire when the publisher (not the "friend") is accused of click fraud.

Clicks generated by publisher: Some publishers tries to generate clicks manually or with the help of computer programs to drive up their revenue.

Following tips will help you protect your Adsense account from click fraud if u don't fall in the last category listed above.

1. Regular monitoring of traffic log and your Adsense reports:

Monitor your Adsense reports and your traffic logs regularly(atleast once a day). If you do this regularly you will become familiar with your site's performance and you will be able to easily identify something strange and suspicious very easily. If you notice something strange in your reports or traffic logs you will have to report it to Adsense support as soon as possible. You may include all the details yo have from your reports or your traffic analysis tool. Suspicious activities can be something like a considerably high click through than you normally gets, considerably high increase in page impressions received, a large number of clicks from a same IP etc. By sending an email with all the details you found you can notify Google about suspected invalid activity. In order to be able to be monitor your sites performance and the behavior of the visitors you will have to incorporate some kind of traffic analysis tools to your site. Google analytics, Stat Counter etc are well known examples used by a large number of webmasters.
If you wish to track the clicks on the ads on your website you may wish to use Ad Logger. You may also check this which uses Google analytics to track adsense clicks. You may also consider doing a search on "webmaster resources" and "site traffic analysis".

2. Be polite in forums:

This tips is only important for those who are promoting their websites through their signatures in different forums. If you act rude in the forums it is never going to help you, but it can sometimes put you in trouble. Think about this case, you behaved in a rude way to some other member in the forum and you have a link to your site on your signature and the angry member decides to click on your ads regularly and deliberately. This can send the wrong message to Google and sometimes they may think thats it you who is doing the clicks or you have appointed someone to click your ads regularly and they might decide to ban you. So I'd advice you to be polite and helping in all the forums in which you are participating. If you can't help, atleast don't blame or make fun of anyone. You may read this for more tips on promoting your website using forums.

3. Don't discuss your source of income(Adsense)with family,friends etc:

Don't tell your friends and family anything about how you are making money online or how your website is making money for you. Even if u decides to tell them make sure to tell them why they can't click on your ads. You will have to convince them that they clicking on your ads won't be a help for you and it will be a harm. The problem with discussing this with your friends and family is that sometimes they will start clicking on your ads thinking that the are helping you earn some bucks. But you know that it can get you banned.

4. Stay away from illegal methods of traffic generation:

Invalid clicks or click fraud includes clicks from traffic generated using methods like Traffic exchange,PTC advertising,Auto surf etc. This type of traffic are blacklisted by Adsense TOS. So you must stay away from traffic generated by illegal methods. The above mentioned are just examples and the list is not limited to them.

Accidental Clicks:

Couple of weeks ago i wrote to Adsense support about the impressions generated by me while updating my site. The reply i got from them said that a publisher is allowed to view his sites as much as they want provided that he\she is not clicking any of the ads that appear on his\her site,he\she is not refreshing the pages too often.So that clears things up.

What if you clicked on your ad accidentally? The answer is, you will have to write Adsense support about this as early as you can. If you are interested in viewing and checking the ads on your site without creating illegal clicks you may use Adsense preview tool. AdSense preview tool is an addition to the right-click menu for Windows Internet Explorer 6.x, allowing you to preview the ads that may show on any web page. If you want to avoid complication of accidentally clicking on your ads you may disable ads for your computer.

Don't sit back and relax while your website is earning you money using adsense. You will have to work hard to protect that Source of income from threats like clickfraud.