Punjabi Khatris originated in the Pothwar plateau (Rawalpindi division) and surrounding regions of Bhera (map), Punjab, now in Pakistan. When Pakistan and India gained independence, most of the Khatris in what became Pakistan migrated to India. Today Khatris live in all regions of India, but are concentrated in Punjab, Delhi and Uttar Pradesh.
Prominent historical figures among the Khatris are all the Sikh Gurus (belonging to the Bedi, Trehan, Bhalla and Sodhi subcastes); Raja Todar Mal (a Tandon Khatri), who as Akbar's Revenue minister codified the revenue collection system; Hari Singh Nalwa (an Uppal Khatri), the prominent general under Maharaja Ranjit Singh [ Hari Singh Nalwa was so feared among the Pathans , that his name would be taken by mothers when scaring children into submission; the Diwans Sawan Mal & Mul Raj Chopra - governors of Multan under Ranjit Singh who instituted vast improvement in agriculture.
During the Rajput Period (AD 647 to 1021) the Khatris lost political power to the emerging order of Rajputs. Unemployment caused them to switch their skills to commerce and trade. At the end of Rajput control, Khatris again reemerged as dominant. In the Muslim Period (AD 1021-1752) foreign Muslims from Central Asia, Iran or Arabia were employed in higher positions of bureaucracy and military. However, local administration and revenue collection remained in the hands of local Hindus or Muslims. Though members of other castes were also employed, most of these offices were held by Khatris. One of the offices held by Khatris was called "Qanungo", means "an expounder of law". This designation was used for hereditary registrar of landed property in a district. The founder of Sikhism Guru Nanak, a Khatri of Bedi section, started his career in one of these offices. Khatris continue to be the most educated group in modern Punjab.
The Khatris were adversely impacted by the partition  of India. It resulted in the loss of the traditional home regions of the Khatris.
Although a large majority of Khatris are Hindus, some converted to Islam. The conversion started in 12th century and continued till 1947. In western districts of the Punjab (Sargodha, Mianwali, Multan, Jhang, Chakwal, Rawalpindi and Faislabad) converted Khatri traders called themselves "Khoja". Some time they are called "Khoja Sheikh".
In other districts of the Punjab Khatris use "Sheikh" as title and it is generally assumed that they belong to Muslim trading families. The Khoja Sheikhs of Chiniot, a town of district Jhang, known as Chiniotis, are one of the leading industralists of Pakistan. A group of Muslim Khatris is known as "Qanungo Sheikhs", considered a higher caste. Many Muslim Khatris still use their pre Islamic Hindu gotras (sections).
Link to article: http://www.sikhiwiki.org/index.php/Bhera