Thumbnails are created from the original image, not the processed (watermarked) image.

If you skip the thumbnail step, then create the thumbnail after upload using the Create Thumbnail tool - https://www.joomlacontenteditor.net/support/documentation/file-browser/thumbnail-editor - then the resulting thumbnail will contain the watermark.

[quotePost id="113475"]Thanks, this works.

However, now the watermark is also scaled down. Would it be possible to add the option to apply the watermark after the scaling?[/quotePost]

With this method, no, as the thumbnail is created from the already watermarked image. If the thumbnail was created from a watermarked image during upload, then the same would apply.

I will have another look at the upload process and see if there is a way to apply the watermark to thumbnail image as well as the original image, so the watermark remains in scale.