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Okay Thats easy.
1. Make sure your watermark is a png image
2. Make sure the you will on the watermark path and set the following options to yes in admin => image protection => options
Enable on-the-fly image protection
This option uses the watermark.php script to serve images
When using on-the-fly image generation, do you want to overlay the watermark image?
You can use this feature for on-the-fly watermarks in combination with the on-the-fly image generation.
Full server path to watermark overlay image.
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