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In this video tutorial, Sean from Tracker Software demonstrates how to add watermarks to documents using PDF Exchange Editor. Watermarks are useful for protecting documents, indicating ownership, and preventing counterfeiting. They can be added in both text and image formats. To add a watermark, click on the organize tab, then the watermarks drop-down menu, and finally click add. You can choose to use an image file or custom text for the watermark. Options for customizing the watermark, such as font, alignment, and macros, are available in the add watermark dialog box.