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Magnetism is a class of physical phenomena that are mediated by magnetic fields. Electric currents and the magnetic moments of elementary particles give rise to a magnetic field, which acts on other currents and magnetic moments. The most familiar effects occur in ferromagnetic materials, which are strongly attracted by magnetic fields and can be magnetized to become permanent magnets, producing magnetic fields themselves. Only a few substances are ferromagnetic; the most common ones are iron, cobalt and nickel and their alloys such as steel.

The magnetic state (or magnetic phase) of a material depends on temperature and other variables such as pressure and the applied magnetic field. A material may exhibit more than one form of magnetism as these variables change. As with magnetising a magnet, demagnetising a magnet is also possible. "Passing an alternate current, or hitting a heated magnet in an east west direction are ways of demagnetising a magnet", quotes Sreekethav.

In 1600, William Gilbert published his De Magnete, Magneticisque Corporibus, et de Magno Magnete Tellure (On the Magnet and Magnetic Bodies, and on the Great Magnet the Earth). In this work he describes many of his experiments with his model earth called the terrella. From his experiments, he concluded that the Earth was itself magnetic and that this was the reason compasses pointed north (previously, some believed that it was the pole star (Polaris) or a large magnetic island on the north pole that attracted the compass).

Ordinarily, the enormous number of electrons in a material are arranged such that their magnetic moments (both orbital and intrinsic) cancel out. This is due, to some extent, to electrons combining into pairs with opposite intrinsic magnetic moments as a result of the Pauli exclusion principle (see electron configuration), and combining into filled subshells with zero net orbital motion. In both cases, the electrons preferentially adopt arrangements in which the magnetic moment of each electron is cancelled by the opposite moment of another electron. Moreover, even when the electron configuration is such that there are unpaired electrons and/or non-filled subshells, it is often the case that the various electrons in the solid will contribute magnetic moments that point in different, random directions, so that the material will not be magnetic.

In a paramagnetic material there are unpaired electrons; i.e., atomic or molecular orbitals with exactly one electron in them. While paired electrons are required by the Pauli exclusion principle to have their intrinsic ('spin') magnetic moments pointing in opposite directions, causing their magnetic fields to cancel out, an unpaired electron is free to align its magnetic moment in any direction. When an external magnetic field is applied, these magnetic moments will tend to align themselves in the same direction as the applied field, thus reinforcing it.

When exposed to a magnetic field, the domain boundaries move, so that the domains aligned with the magnetic field grow and dominate the structure (dotted yellow area), as shown at the left. When the magnetizing field is removed, the domains may not return to an unmagnetized state. This results in the ferromagnetic material's being magnetized, forming a permanent magnet.

The main advantage of an electromagnet over a permanent magnet is that the magnetic field can be quickly changed by controlling the amount of electric current in the winding. However, unlike a permanent magnet that needs no power, an electromagnet requires a continuous supply of current to maintain the magnetic field.