Problems in making a submitted paper available to interested fellow researchers This summer, I present a paper at two conferences. I submitted the paper to the conferences earlier this year, then improved it significantly and submitted it to a journal where it is now under review.

I now presented/am going to present my paper with the updated contents, in the form more or less identical to what I submitted to the journal (i.e., no differences that would be visible in a 15-minute presentation), because it makes no sense to present the old version with certain weakpoints.

Now, I seem to have sparked interest in fellow researchers that came to me after my presentation. One wants her Master student's thesis to include a large, comparative literature review, for which she would love to receive the full version of my paper. 
The other is researching in the same area and would like to "just" read my paper, without having mentioned any "specific" usage.

Can I send to them the most updated version of my paper, in the form that is currently submitted and under review at the journal? I understand that me distributing the paper when I actually want the journal to publish it and distribute it for me could be a problem. 
Should I disclose this to the journal? Their guidelines for authors mention only submissions to other journals explicitly.

Furthermore, is it common practice or perhaps risky to send out relatively finished papers that are sent out to a journal? I would overlay a watermark over all pages, "do not circulate" or similar, is this reasonable?

One of the two people asked me if I submitted already, and I told her it is under review. I was not sure how to interpret that she asked this question.
I don't see any problem with sending the paper to interested colleagues. This actually a good thing and if you then mention that this is still work in progress and might occur changes in the final text, it is no problem. Additionally why do you want to indicate that they should not circulate your paper? It is still your own text and research and I guess, you want that as many people as possible can read your paper?! But by saying that they should not circulate the paper to other colleagues, this sounds strange to me (and probably, they do it anyway to some extent ;)  You can state in your CV or on your homepage that you have presented your work at conference X and that your paper Y is under review in Journal A and if your work get published, you can send the persons who got your previous version of the paper the link to the final version of journal article.  EDIT: my take on the argument above by  darij grinberg: Even if you send your earlier draft to the respective reviewer, it is not your fault and thus, not your problem that you should worry about. She/He could either indicate a conflict or interests because he or she knows you or he/she just observes the improvements of your paper and will give you further feedback.