My iron chlorides probably weren't precisely as listed above, because I made them by dissolving iron in HCl (see my other video here: http://www.youtube.com/watch?v=iWpfHk... ). What you want to shoot for is a 2:1 ratio of FeCl3:FeCl2.
Ferrofluids consist of 3 parts: a magnetically responsive material, a surfactant, and a carrier fluid. The surfactant serves to suspend the magnetic material and keep it from clumping together. Here, our material is magnetite, the surfactant is oleic acid, and the carrier fluid is kerosene.
First, we will make the magnetically active material. Mix the two iron chlorides together, and pour the mixture into 150mL of household ammonia solution. This initiates a complex reaction that produces tiny particles of magnetite, Fe3O4, in ammonium chloride solution.
Next, we will coat the material in the surfactant. Take the solution outside or in a fume hood, and heat it to near boiling. Then add 5mL of oleic acid with lots of stirring, and continue to heat until the smell of ammonia disappears. This usually takes about an hour - swirl the solution often to keep the magnetite suspended and to let the oleic acid attach to it completely. The acid initially reacts with the ammonia to form ammonium oleate, a slightly soluble soap. Additional heating decomposes this to ammonia gas, which escapes, and oleate ions, which attach to and surround the magnetite particles.
Now, we need to suspend our oleic acid-coated magnetite in a carrier fluid. Keep your solution outside, let it cool, and add in 100mL of kerosene. Stir this up a bit (but NOT with a magnetic stirrer :) ). Oleic acid is insoluble in water, but is soluble in kerosene. With stirring, it will migrate into the kerosene layer and stay there, taking its attached magnetite with it. You'll end up with a black layer of liquid on top of a clear layer of water. This black layer can be decanted off, and is your finished product of ferrofluid!
Because it's mostly kerosene, this stuff smells and will stain things very easily. For display, it's neat to put a small amount in a bottle or vial, perhaps filled with water so that the residue doesn't stick to the sides. Bring a magnet nearby and watch it follow it!
Hope you enjoyed the video and found it instructive. Let me know in the comments!