Alternative Investing

These shoes offer buyers an immediate 500 percent profit

How do sneakers work as an investment?

People around the world lined up at the weekend to buy Kanye West's latest sneaker, the Yeezy Boost 350 V2. But not every pair landed up in buyers' closets.

An opportunity to quickly turn a profit of as much as 500 percent awaited Yeezy buyers on the $6 billion global sneaker resale market, said Josh Luber, CEO of StockX, the world's first online consumer stock market for in-demand kicks.

Based on that figure, certain sneakers such as Yeezys could offer better returns than mainstream asset classes, Luber told CNBC's "Street Signs" on Wednesday.

Yeezys were a rare case but generally, buyers who purchased limited edition sneakers at retail price had an instant arbitrage opportunity of 30 to 50 percent, Luber, a former IBM consultant who's been a sneakerhead since age 8, explained.

"Sneakers follow the same basic economic principals of anything with a high resale value-supply and demand plays a big factor in how much a shoe is worth," he said.

EBay has historically been the home of the secondary sneaker market but that's something seven-month-old StockX hopes to change, with a system rooted in the principles of financial trading.

As a live bid-ask marketplace, StockX allows buyers to place bids, sellers to place asks, and automatically executes a trade when a seller's ask price meets a buyer's bid. By providing a searchable database of about 5,000 kinds of shoes and pricing graphics and data from every shoe's release date onward, including recent purchase prices, 52-week highs and lows, and whether certain sizes cost more, StockX has taken investment sneakers to a whole new level.

There are even brand indexes that track estimated U.S. resale prices over the past 24 hours. As of Wednesday, the Jordan Index was down 0.2 percent, while the Nike Index was 15 percent higher.

"When we say this is like a stock or commodities market, we really mean the unique way in which a securities market connects buyers and sellers," Luber said. "But instead of trading an asset or digital currency, we're physically moving a consumer good from one person to another."

One day, sneakers could potentially be traded as if they were a digital currency, he added.

Alongside billionaire co-founder Dan Gilbert—whose titles include Quicken Loans CEO and Cleveland Cavaliers owner—StockX's other high-profile partners and investors include rapper Eminem and angel investor Ron Conway.

The company, which takes a percentage from each trade, is an evolution of Luber's previous venture. In 2012, he founded sneaker data website, which operated in a similar fashion to the automotive research company Kelly Blue Book.

Unlike other consumer marketplaces, however, StockX handles only "deadstock" sneakers, i.e. unsold, unused retail stock, because the nature of the market required a standardized, commoditized product, Luber explained.

Moreover, every shoe sold on StockX was authenticated, he explained.

Fake sneakers are a big problem in the industry, and anyone buying or selling on StockX know that their trade will be legitimate and backed by StockX."

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