Watermarks are a security measure incorporated in stamp paper to deter counterfeiting. Watermarks may be words, letters or symbols and are formed from dies attached to the frame used to make paper from pulp. The dies result in thin places in the paper.
Some postage stamps exist both on unwatermarked and watermarked paper, and even on paper with different watermarks. Stamps with the same design but that differ based on the absence or existence of a watermark, or the specific watermark design, generally receive separate catalog numbers. Therefore, watermarks may be the sole difference between a very common stamp and a stamp valued in the hundreds or thousands of dollars.
Many individuals may have noted fancy paper with a watermark such as “25% cotton bond” or the brand name of the paper. These watermarks may be readable simply by holding paper up to light. Stamp collectors refer to the appearance of watermarks as viewed from the back of the stamp.
While postage stamps of some countries such as Ireland and Italy have watermarks that often can be easily seen without need for other tools, many stamps require more sophisticated study to determine a watermark. The best method of detecting watermarks is to lay the stamp face down in a dark tray and moisten the stamp with watermark fluid which brings up the watermark in dark lines against a lighter background.
While many collectors use lighter fluid for watermarking, APS recommends commercial watermark fluid. Watermark fluid evaporates quickly and should not impact the gum on an unused stamp. APS helped develop and uses Clarity watermarking fluid which is safer for your stamps and health than many other options. Other equipment such as the Safe Signoscope and Morley Bright Watermark Detector have been developed to assist in watermark identification but in my experience, nothing beats using traditional watermark fluid. Stamps are also often “dipped” in watermark fluid to look for thins, creases and other faults.
Watermarks used on U.S. philatelic material include the letters “USPS” on postage stamps, “USPOD,” “USA” and various monograms and numbers on postal stationery, and “USIR” on revenue stamps. A double line “USPS” was used on U.S. postage stamps from 1895-1910 (Scott watermark 191) and a single line “USPS” (Scott watermark 190) was used on U.S. stamps from 1910-1916. Many stamps include only a portion of the watermark, sometimes only a small part of a single letter. While watermarks on most U.S. postal stationery can be fairly easy to detect without any special equipment, the single line watermarks on U.S. stamps can be particularly difficult to see.
More information can be found here or by going to https://stamps.org/learn/c3a-online-learning and clicking Enter C3a and selecting The Video Guide to Stamp Collecting.