Ferrofluid is an oily liquid which can be used to demonstrate the effects of a magnetic field. The liquid has only recently become available to the mass market and has been made affordable by developments in nanoparticle technology. In the case of Ferrofluid, nanoparticles of an iron based substance (usually hematite or magnetite) are suspended in a clear solution. When a magnet is brought near the liquid, the magnetic field can be seen very clearly. Unlike iron filings, the fluid nature of this substance means that dynamic peaks and valleys can be formed as the magnet is moved.
Ferrofluid is available through many of the main lab suppliers but is still quite expensive. Many videos can be found on YouTube by searching for the term "FERROFLUID" but be aware that many of these videos and the photos on this page have been created using a macro photographic lens and the actual peaks and valleys may be difficult to see with the naked eye. Because of the small scale involved, a flexcam could be used to demonstrate ferrofluid to a class.
Ferrofluids are generally stable and can be used many times before the binding solution (the surfactant) starts to break down. Because of this, after a long amount of time, the fluid may not flow as easily. The fluid can leave an oily residue on hands and equipment that may be difficult to remove. Ensure the demonstrator wears gloves when handling the fluid and that it does not come into physical contact with the magnet.
The easiest way to demonstrate ferrofluid is to pour a little into a Petri dish and hold a strong magnet underneath. The fluid is a great alternative to the traditional use of iron filings and the outcome is visually more impressive.
Here is the technical bit:
"When a paramagnetic fluid is subjected to a strong vertical magnetic field, the surface forms a regular pattern of peaks and valleys. This effect is known as the normal-field instability. The instability is driven by the magnetic field; it can be explained by considering which shape of the fluid minimises the total energy of the system.
From the point of view of magnetic energy, peaks and valleys are energetically favorable. In the corrugated configuration, the magnetic field is concentrated in the peaks; since the fluid is more easily magnetised than the air, this lowers the magnetic energy. In other words, the field lines prefer to run through the fluid, and they try to ride the spikes of fluid out into space as far as possible" Source: Wikipedia.