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With increasing use of internet the security of the data is the main concern. To secure data from the unauthorized access many techniques are used. Watermarking is one of such technique that is used for providing the security of the data. Digital watermarking is process of insertion of the watermark signal in the host signal. The digital watermarking system should be unappreciable, reliable and stable, etc. Earlier many watermarking techniques like DCT, DWT, and SVD were proposed for designing an efficient watermarking system. it is was observed that the most of the work is done in embedding the watermark in the image but the security of watermark before it is embedded in the image is not considered anywhere. So in this a new method of image watermarking in which the security of the watermark is considered is proposed. The data compression techniques have been used to compress the watermark. Compressing the data will reduce the length and increases the security of the system. In addition to this a key exchange algorithm is also used that will provide additional security to the data.