
How they work
Ferrofluids containing magnetite can be prepared by combining the appropriate amounts of an Fe(II) salt and an Fe(III) salt in basic solution, a combination that causes the mixed valence oxide, Fe3O4, to precipitate from solution:
2 FeCl3 + FeCl2 + 8 NH3 + 4H2O --> Fe3O4 + 8 NH4Cl
However, the particles of magnetite must remain small in order to remain suspended in the liquid medium. To keep them small, magnetic and van der Waals interactions must be overcome to prevent the particles from agglomerating. Thermal motion of magnetite particles smaller than ~10 nm in diameter is sufficient to prevent agglomeration due to magnetic interactions.
http://www.youtube.com/watch?v=XUz1ZI-w6LQ&feature=related