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Of course it works if your path and watermark are valid and you set it up right
You want permanent watermarking. If you use GD your watermark is a png. if you use mogrify use a gif watermark
As long as you set either one up like instructed above watermarking should work fine. Permanent watermarking just needs category permissions set
If you continue to have trouble I suggest you email support and have someone look at your admin settings there is something your missing here in the english translation which is why always we have issues trying to help you.
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