I am level 5 in self found faction, what are the downsides to change the faction now to trading? will I startfrom lvl 1 in yrading? do I lose/or can not use some items?..
You know it all already.
Yes, you’ll start from lvl 1 in MG, but won’t lose your progress in CoF (only the favor), so you can come back later if you wish.
Also yes, you won’t be able to use any items you found while you were aligned to CoF when you change to MG.
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Something you might also find useful: when you create a new character, whichever faction you choose will share progress with your previous characters on that faction.